Kobe Steel's (TSE:5406) Dividend Will Be ¥45.00

Kobe Steel, Ltd. (TSE:5406) has announced that it will pay a dividend of ¥45.00 per share on the 3rd of June. This will take the annual payment to 4.4% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Kobe Steel

Kobe Steel's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Kobe Steel's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 31.5%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 39%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from ¥40.00 total annually to ¥90.00. This means that it has been growing its distributions at 8.4% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Kobe Steel has been growing its earnings per share at 19% a year over the past five years. Kobe Steel definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Kobe Steel's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. For example, we've identified 3 warning signs for Kobe Steel (1 is significant!) that you should be aware of before investing. Is Kobe 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.