Nippon Kayaku (TSE:4272) Is Increasing Its Dividend To ¥37.50

The board of Nippon Kayaku Co., Ltd. (TSE:4272) has announced that the dividend on 27th of June will be increased to ¥37.50, which will be 67% higher than last year's payment of ¥22.50 which covered the same period. This will take the annual payment to 3.2% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Nippon Kayaku

Nippon Kayaku's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Nippon Kayaku was paying only paying out a fraction of earnings, but the payment was a massive 194% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 12.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ¥20.00 in 2015 to the most recent total annual payment of ¥45.00. This implies that the company grew its distributions at a yearly rate of about 8.4% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Nippon Kayaku May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Nippon Kayaku's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While EPS growth is quite low, Nippon Kayaku has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Nippon Kayaku's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Nippon Kayaku's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Nippon Kayaku is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Nippon Kayaku that you should be aware of before investing. Is Nippon Kayaku not quite the opportunity you were looking for? Why not check out our selection of top 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.