Osaka Organic Chemical Industry (TSE:4187) Is Increasing Its Dividend To ¥29.00

Osaka Organic Chemical Industry Ltd.'s (TSE:4187) dividend will be increasing from last year's payment of the same period to ¥29.00 on 7th of August. Even though the dividend went up, the yield is still quite low at only 1.8%.

See our latest analysis for Osaka Organic Chemical Industry

Osaka Organic Chemical Industry's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Osaka Organic Chemical Industry's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 36.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥10.00 in 2014, and the most recent fiscal year payment was ¥58.00. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

We Could See Osaka Organic Chemical Industry's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Osaka Organic Chemical Industry has seen EPS rising for the last five years, at 5.5% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Osaka Organic Chemical Industry will make a great income stock. While Osaka Organic Chemical Industry is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Osaka Organic Chemical Industry that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.