Nippon Kayaku (TSE:4272) Has Affirmed Its Dividend Of ¥22.50

The board of Nippon Kayaku Co., Ltd. (TSE:4272) has announced that it will pay a dividend of ¥22.50 per share on the 2nd of December. This makes the dividend yield 3.5%, which will augment investor returns quite nicely.

Check out our latest analysis for Nippon Kayaku

Nippon Kayaku Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

The next 12 months is set to see EPS grow by 33.8%. If the dividend continues on its recent course, the payout ratio in 12 months could be 117%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥45.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Nippon Kayaku's EPS has declined at around 17% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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 becomes a long term trend.

We're Not Big Fans Of Nippon Kayaku's Dividend

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Nippon Kayaku make more consistent payments in the future. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Nippon Kayaku (1 makes us a bit uncomfortable!) that you should be aware of before investing. 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.