Nippon Concrete Industries' (TSE:5269) Dividend Will Be Reduced To ¥4.00

The board of Nippon Concrete Industries Co., Ltd. (TSE:5269) has announced it will be reducing its dividend by 38% from last year's payment of ¥6.50 on the 2nd of December, with shareholders receiving ¥4.00. The dividend yield of 4.4% is still a nice boost to shareholder returns, despite the cut.

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Nippon Concrete Industries Might Find It Hard To Continue The Dividend

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the dividend made up 382% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

Analysts expect the EPS to grow by 55.8% over the next 12 months. This is the right direction to be moving, but it is not enough to achieve profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

View our latest analysis for Nippon Concrete Industries

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 dividend has gone from an annual total of ¥5.00 in 2015 to the most recent total annual payment of ¥13.00. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Nippon Concrete Industries has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been sinking by 29% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Nippon Concrete Industries' Dividend Doesn't Look Great

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Nippon Concrete Industries that investors need to be conscious of moving forward. Is Nippon Concrete Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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