Mitsubishi Chemical Group (TSE:4188) Is Due To Pay A Dividend Of ¥16.00

Mitsubishi Chemical Group Corporation (TSE:4188) has announced that it will pay a dividend of ¥16.00 per share on the 4th of June. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.

See our latest analysis for Mitsubishi Chemical Group

Mitsubishi Chemical Group'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. The last dividend was quite easily covered by Mitsubishi Chemical Group's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 19.3%. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was ¥12.00, compared to the most recent full-year payment of ¥32.00. This means that it has been growing its distributions at 10% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Mitsubishi Chemical Group May Find It Hard To Grow The Dividend

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. Over the past five years, it looks as though Mitsubishi Chemical Group's EPS has declined at around 3.9% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Mitsubishi Chemical Group's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Mitsubishi Chemical Group that investors should know about before committing capital to this stock. 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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