Nakayama Steel Works' (TSE:5408) Dividend Is Being Reduced To ¥18.00

Nakayama Steel Works, Ltd. (TSE:5408) is reducing its dividend from last year's comparable payment to ¥18.00 on the 2nd of December. The yield is still above the industry average at 4.9%.

View our latest analysis for Nakayama Steel Works

Nakayama Steel Works' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Nakayama Steel Works was paying a whopping 161% as a dividend, but this only made up 35% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS could expand by 19.1% if recent trends continue. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

Nakayama Steel Works' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2016, the annual payment back then was ¥5.00, compared to the most recent full-year payment of ¥40.00. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nakayama Steel Works has impressed us by growing EPS at 19% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Nakayama Steel Works' prospects of growing its dividend payments in the future.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Nakayama Steel Works that investors need to be conscious of moving forward. Is Nakayama Steel Works not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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