Nippon Denko (TSE:5563) Is Paying Out A Dividend Of ¥6.00

The board of Nippon Denko Co., Ltd. (TSE:5563) has announced that it will pay a dividend on the 31st of March, with investors receiving ¥6.00 per share. Based on this payment, the dividend yield will be 3.2%, which is fairly typical for the industry.

View our latest analysis for Nippon Denko

Nippon Denko's Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Nippon Denko was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 48.8% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from ¥5.00 total annually to ¥10.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

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 49% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Nippon Denko Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think Nippon Denko might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

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. Taking the debate a bit further, we've identified 1 warning sign for Nippon Denko that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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