Nakayama Steel Works' (TSE:5408) Shareholders Will Receive A Smaller Dividend Than Last Year

Nakayama Steel Works, Ltd. (TSE:5408) has announced that on 2nd of December, it will be paying a dividend of¥18.00, which a reduction from last year's comparable dividend. This means the annual payment is 5.0% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Nakayama Steel Works

Nakayama Steel Works' Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. 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. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share could rise by 19.1% over the next year if the trend from the last few years continues. 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

It's comforting to see that Nakayama Steel Works has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of ¥5.00 in 2016 to the most recent total annual payment of ¥40.00. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. 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 seen EPS rising for the last five years, at 19% per annum. 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

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Nakayama Steel Works is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Nakayama Steel Works that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.