Takeda Pharmaceutical (TSE:4502) Has Announced A Dividend Of ¥94.00

Takeda Pharmaceutical Company Limited (TSE:4502) will pay a dividend of ¥94.00 on the 1st of July. This will take the annual payment to 4.4% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Takeda Pharmaceutical

Takeda Pharmaceutical's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Takeda Pharmaceutical was paying out 161% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

EPS is set to grow by 88.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 88%, which is on the higher side, but certainly still feasible.

Takeda Pharmaceutical Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was ¥180.00, compared to the most recent full-year payment of ¥188.00. Dividend payments have been growing, but very slowly over the period. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. In the last five years, Takeda Pharmaceutical's earnings per share has shrunk at approximately 4.2% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Takeda Pharmaceutical's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Takeda Pharmaceutical will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.

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. Case in point: We've spotted 4 warning signs for Takeda Pharmaceutical (of which 2 are significant!) you should know about. 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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