Mitsubishi Chemical Group's (TSE:4188) Dividend Will Be ¥16.00

The board of Mitsubishi Chemical Group Corporation (TSE:4188) has announced that it will pay a dividend of ¥16.00 per share on the 6th of June. This will take the dividend yield to an attractive 3.7%, providing a nice boost to shareholder returns.

See our latest analysis for Mitsubishi Chemical Group

Mitsubishi Chemical Group's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Mitsubishi Chemical Group's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 26.5%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 37%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥12.00 in 2014 to the most recent total annual payment of ¥32.00. This means that it has been growing its distributions at 10% 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.

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. In the last five years, Mitsubishi Chemical Group's earnings per share has shrunk at approximately 2.6% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On Mitsubishi Chemical Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Mitsubishi Chemical Group's payments are rock solid. 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. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Mitsubishi Chemical Group (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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