KH Neochem (TSE:4189) Has Announced A Dividend Of ¥45.00

The board of KH Neochem Co., Ltd. (TSE:4189) has announced that it will pay a dividend on the 27th of March, with investors receiving ¥45.00 per share. This makes the dividend yield 4.3%, which will augment investor returns quite nicely.

Check out our latest analysis for KH Neochem

KH Neochem's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, KH Neochem's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 14.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 44%, which is in the range that makes us comfortable with the sustainability of the dividend.

KH Neochem Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2016, the dividend has gone from ¥46.50 total annually to ¥90.00. This implies that the company grew its distributions at a yearly rate of about 8.6% over that duration. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider KH Neochem to be a consistent dividend paying stock.

KH Neochem May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, KH Neochem's earnings per share has shrunk at approximately 2.3% per annum. 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 KH Neochem's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.