Stock Analysis

Nippon Denko (TSE:5563) Has Announced A Dividend Of ¥4.00

Source: Shutterstock

Nippon Denko Co., Ltd. (TSE:5563) will pay a dividend of ¥4.00 on the 9th of September. This takes the annual payment to 2.9% of the current stock price, which is about average for the industry.

See our latest analysis for Nippon Denko

Nippon Denko's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Nippon Denko's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share could rise by 55.6% 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 25%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

TSE:5563 Historic Dividend May 13th 2024

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥5.00 in 2014, and the most recent fiscal year payment was ¥9.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Nippon Denko Might Find It Hard To Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Nippon Denko has grown earnings per share at 56% per year over the past five years. EPS has been growing well, but Nippon Denko has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Our Thoughts On Nippon Denko's Dividend

Overall, we always like to see the dividend being raised, but we don't think Nippon Denko will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Nippon Denko that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Valuation is complex, but we're helping make it simple.

Find out whether Nippon Denko is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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

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.