Nitta Gelatin (TSE:4977) Has Announced A Dividend Of ¥8.00

Nitta Gelatin Inc.'s (TSE:4977) investors are due to receive a payment of ¥8.00 per share on 1st of July. However, the dividend yield of 2.5% still remains in a typical range for the industry.

View our latest analysis for Nitta Gelatin

Nitta Gelatin's Distributions May Be Difficult To Sustain

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Despite not generating a profit, Nitta Gelatin is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Looking forward, earnings per share could rise by 21.6% over the next year if the trend from the last few years continues. The company seems to be going down the right path, but it will probably take a little bit longer than a year to cross over into profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥12.00 in 2014, and the most recent fiscal year payment was ¥17.00. This works out to be a compound annual growth rate (CAGR) of approximately 3.5% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Company Could Face Some Challenges Growing The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Nitta Gelatin has impressed us by growing EPS at 22% per year over the past five years. While the company is not yet turning a profit, it is growing at a good rate. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Nitta Gelatin (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.