Nakayama Steel Works (TSE:5408) Is Paying Out Less In Dividends Than Last Year

Nakayama Steel Works, Ltd. (TSE:5408) has announced that on 2nd of December, it will be paying a dividend of¥8.00, which a reduction from last year's comparable dividend. The dividend yield will be in the average range for the industry at 3.5%.

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Nakayama Steel Works' Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Nakayama Steel Works' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

If the trend of the last few years continues, EPS will grow by 12.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, 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. Since 2016, the annual payment back then was ¥5.00, compared to the most recent full-year payment of ¥24.00. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Nakayama Steel Works has been growing its earnings per share at 12% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

We Really Like Nakayama Steel Works' Dividend

Overall, we think that Nakayama Steel Works 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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. 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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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.