Nippon Fine Chemical (TSE:4362) Has Announced A Dividend Of ¥35.00

The board of Nippon Fine Chemical Co., Ltd. (TSE:4362) has announced that it will pay a dividend on the 26th of June, with investors receiving ¥35.00 per share. This will take the annual payment to 2.7% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Nippon Fine Chemical

Nippon Fine Chemical's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Nippon Fine Chemical's dividend was only 21% of earnings, however it was paying out 391% of free 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.

Looking forward, earnings per share is forecast to rise by 11.0% over the next year. If the dividend continues on this path, the payout ratio could be 49% by next year, which we think can be pretty sustainable going forward.

Nippon Fine Chemical Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of ¥20.00 in 2014 to the most recent total annual payment of ¥70.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Nippon Fine Chemical Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Nippon Fine Chemical has grown earnings per share at 9.0% per year over the past five years. Nippon Fine Chemical definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. Taking the debate a bit further, we've identified 1 warning sign for Nippon Fine Chemical that investors need to be conscious of moving forward. Is Nippon Fine Chemical not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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