Shin Nippon Biomedical Laboratories' (TSE:2395) Dividend Will Be ¥20.00

Shin Nippon Biomedical Laboratories, Ltd.'s (TSE:2395) investors are due to receive a payment of ¥20.00 per share on 2nd of December. This makes the dividend yield 4.1%, which will augment investor returns quite nicely.

Check out our latest analysis for Shin Nippon Biomedical Laboratories

Shin Nippon Biomedical Laboratories' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Shin Nippon Biomedical Laboratories' earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 4.6% over the next year. If the dividend continues on this path, the payout ratio could be 55% by next year, which we think can be pretty sustainable going forward.

Shin Nippon Biomedical Laboratories Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2019, the dividend has gone from ¥3.00 total annually to ¥50.00. This implies that the company grew its distributions at a yearly rate of about 76% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Shin Nippon Biomedical Laboratories has impressed us by growing EPS at 23% 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.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Shin Nippon Biomedical Laboratories' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Shin Nippon Biomedical Laboratories you should be aware of, and 2 of them make us uncomfortable. Is Shin Nippon Biomedical Laboratories not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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