Shin Nippon Biomedical Laboratories (TSE:2395) Has Affirmed Its Dividend Of ¥30.00

Shin Nippon Biomedical Laboratories, Ltd. (TSE:2395) has announced that it will pay a dividend of ¥30.00 per share on the 25th of June. This means the annual payment is 3.5% of the current stock price, which is above the average for the industry.

View our latest analysis for Shin Nippon Biomedical Laboratories

Shin Nippon Biomedical Laboratories' Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Shin Nippon Biomedical Laboratories was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 17.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 51% by next year, which is in a pretty sustainable range.

Shin Nippon Biomedical Laboratories Doesn't Have A Long Payment History

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. The dividend has gone from an annual total of ¥3.00 in 2019 to the most recent total annual payment of ¥50.00. This works out to be a compound annual growth rate (CAGR) of approximately 60% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Shin Nippon Biomedical Laboratories has seen EPS rising for the last five years, at 20% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Shin Nippon Biomedical Laboratories (1 is potentially serious!) that you should be aware of before investing. 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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