KH Neochem (TSE:4189) Has Announced A Dividend Of ¥52.50

KH Neochem Co., Ltd.'s (TSE:4189) investors are due to receive a payment of ¥52.50 per share on 26th of March. This makes the dividend yield 4.3%, which is above the industry average.

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KH Neochem's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. KH Neochem is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 13.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for KH Neochem

KH Neochem Is Still Building Its Track Record

It is great to see that KH Neochem has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2016, the dividend has gone from ¥46.50 total annually to ¥105.00. This implies that the company grew its distributions at a yearly rate of about 9.5% 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.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. KH Neochem has seen EPS rising for the last five years, at 21% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While KH Neochem is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for KH Neochem that investors should take into consideration. 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.