Nippon Steel (TSE:5401) Will Pay A Dividend Of ¥80.00

The board of Nippon Steel Corporation (TSE:5401) has announced that it will pay a dividend of ¥80.00 per share on the 2nd of December. This takes the dividend yield to 4.6%, which shareholders will be pleased with.

Check out our latest analysis for Nippon Steel

Nippon Steel's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Nippon Steel's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 6.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 ¥40.00 in 2014 to the most recent total annual payment of ¥160.00. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Nippon Steel 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.

The Dividend Looks Likely To Grow

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. Nippon Steel has seen EPS rising for the last five years, at 16% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Nippon Steel's prospects of growing its dividend payments in the future.

We Really Like Nippon Steel's Dividend

Overall, a dividend increase is always good, and we think that Nippon Steel is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Nippon Steel that investors should know about before committing capital to this stock. Is Nippon Steel not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.

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