Nakayama Steel Works (TSE:5408) Is Due To Pay A Dividend Of ¥22.00

Nakayama Steel Works, Ltd. (TSE:5408) will pay a dividend of ¥22.00 on the 27th of June. The yield is still above the industry average at 5.0%.

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

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Nakayama Steel Works' dividend was only 38% of earnings, however it was paying out 127% of free cash flows. 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 9.4% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Nakayama Steel Works

Nakayama Steel Works' Dividend Has Lacked Consistency

Looking back, Nakayama Steel Works' dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The annual payment during the last 8 years was ¥5.00 in 2017, and the most recent fiscal year payment was ¥40.00. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

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. We are encouraged to see that Nakayama Steel Works has grown earnings per share at 9.4% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

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.

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. For instance, we've picked out 1 warning sign for Nakayama Steel Works that investors should take into consideration. 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.