Nippon Steel (TSE:5401) Will Pay A Smaller Dividend Than Last Year

Nippon Steel Corporation's (TSE:5401) dividend is being reduced from last year's payment covering the same period to ¥60.00 on the 8th of December. The dividend yield will be in the average range for the industry at 3.6%.

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Nippon Steel's Distributions May Be Difficult To Sustain

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Even though Nippon Steel isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Analysts are expecting EPS to grow by 40.9% over the next 12 months. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.

View our latest analysis for Nippon Steel

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥50.00, compared to the most recent full-year payment of ¥120.00. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

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. Nippon Steel has impressed us by growing EPS at 27% per year over the past five years. The company hasn't been turning a profit, but it running in the right direction. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

Our Thoughts On Nippon Steel's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Nippon Steel (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.