Nippon Fine Chemical (TSE:4362) Is Paying Out A Larger Dividend Than Last Year

Nippon Fine Chemical Co., Ltd. (TSE:4362) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of December to ¥47.00. This makes the dividend yield 3.6%, which is above the industry average.

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Nippon Fine Chemical's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Nippon Fine Chemical's dividend was only 43% of earnings, however it was paying out 118% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next year is set to see EPS grow by 7.5%. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Nippon Fine Chemical

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 2015 to the most recent total annual payment of ¥94.00. This means that it has been growing its distributions at 17% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Nippon Fine Chemical Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Nippon Fine Chemical has impressed us by growing EPS at 9.7% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Nippon Fine Chemical's Dividend

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. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Nippon Fine Chemical that you should be aware of before investing. 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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