Nakayama Steel Works (TSE:5408) Has Announced A Dividend Of ¥22.00

Nakayama Steel Works, Ltd.'s (TSE:5408) investors are due to receive a payment of ¥22.00 per share on 27th of June. The dividend yield of 6.8% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Nakayama Steel Works

Nakayama Steel Works' Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Nakayama Steel Works was paying a whopping 156% as a dividend, but this only made up 22% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share could rise by 15.6% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.

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. The dividend has gone from an annual total of ¥5.00 in 2016 to the most recent total annual payment of ¥49.00. This means that it has been growing its distributions at 33% per annum over that time. Nakayama Steel Works 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. We are encouraged to see that Nakayama Steel Works has grown earnings per share at 16% 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.

Our Thoughts On Nakayama Steel Works' Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Nakayama Steel Works is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Nakayama Steel Works that you should be aware of before investing. 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.