Dainichiseika Color & Chemicals Mfg's (TSE:4116) Shareholders Will Receive A Bigger Dividend Than Last Year

Dainichiseika Color & Chemicals Mfg. Co., Ltd. (TSE:4116) will increase its dividend from last year's comparable payment on the 30th of June to ¥90.00. This will take the annual payment to 5.6% of the stock price, which is above what most companies in the industry pay.

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Dainichiseika Color & Chemicals Mfg's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Dainichiseika Color & Chemicals Mfg was paying only paying out a fraction of earnings, but the payment was a massive 121% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 43.0% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

See our latest analysis for Dainichiseika Color & Chemicals Mfg

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from ¥60.00 total annually to ¥180.00. This means that it has been growing its distributions at 12% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Dainichiseika Color & Chemicals Mfg has seen EPS rising for the last five years, at 43% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Dainichiseika Color & Chemicals Mfg is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Dainichiseika Color & Chemicals Mfg that investors need to be conscious of moving forward. Is Dainichiseika Color & Chemicals Mfg not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.