The board of Nippon Denko Co., Ltd. (TSE:5563) has announced that it will pay a dividend of ¥6.00 per share on the 31st of March. This payment means that the dividend yield will be 3.3%, which is around the industry average.
Check out our latest analysis for Nippon Denko
Nippon Denko's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Nippon Denko's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share could rise by 48.8% 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 25% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥5.00 in 2014, and the most recent fiscal year payment was ¥10.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Nippon Denko might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
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. Nippon Denko has seen EPS rising for the last five years, at 49% per annum. 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 think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income 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. As an example, we've identified 1 warning sign for Nippon Denko that you should be aware of before investing. 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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About TSE:5563
Nippon Denko
Manufactures and sells ferroalloys, functional materials, and environmental recycling systems in Japan.
Flawless balance sheet with proven track record and pays a dividend.