Nippon Steel's (TSE:5401) Dividend Will Be ¥85.00

The board of Nippon Steel Corporation (TSE:5401) has announced that it will pay a dividend of ¥85.00 per share on the 26th of June. This means the annual payment is 4.5% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Nippon Steel

Nippon Steel's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, Nippon Steel's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 1.6%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 28%, which is comfortable for the company to continue in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥10.00 in 2014, and the most recent fiscal year payment was ¥160.00. This means that it has been growing its distributions at 32% per annum over that time. 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Nippon Steel has been growing its earnings per share at 17% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Nippon Steel Looks Like A Great Dividend Stock

Overall, we think that Nippon Steel could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Nippon Steel that investors need to be conscious of moving forward. 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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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.