Nippon Denko (TSE:5563) Has Announced A Dividend Of ¥5.00

Nippon Denko Co., Ltd. (TSE:5563) will pay a dividend of ¥5.00 on the 10th of September. This takes the dividend yield to 4.3%, which shareholders will be pleased with.

We've discovered 1 warning sign about Nippon Denko. View them for free.

Nippon Denko's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Nippon Denko was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

If the trend of the last few years continues, EPS will grow by 34.6% over the next 12 months. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Nippon Denko

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from ¥5.00 total annually to ¥11.00. This implies that the company grew its distributions at a yearly rate of about 8.2% over that duration. 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Nippon Denko has impressed us by growing EPS at 35% per year over the past five years. Nippon Denko is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Nippon Denko's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Nippon Denko's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Nippon Denko 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.

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