Nippon Steel (TSE:5401) Has Announced That Its Dividend Will Be Reduced To ¥60.00

Nippon Steel Corporation (TSE:5401) is reducing its dividend from last year's comparable payment to ¥60.00 on the 8th of December. This means that the annual payment will be 3.8% of the current stock price, which is in line with the average for the industry.

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Nippon Steel Might Find It Hard To Continue The Dividend

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. While Nippon Steel is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.

Analysts are expecting EPS to grow by 41.7% over the next 12 months. It's encouraging to see things moving in the right direction, but this probably won't be enough for the company to turn a profit. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.

Check out our latest analysis for Nippon Steel

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥50.00 in 2015 to the most recent total annual payment of ¥120.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.1% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Nippon Steel might have put its house in order since then, but we remain cautious.

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. It's encouraging to see that Nippon Steel has been growing its earnings per share at 27% a year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. For example, we've identified 2 warning signs for Nippon Steel (1 is a bit unpleasant!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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