Takeda Pharmaceutical (TSE:4502) Is Increasing Its Dividend To ¥98.00

Takeda Pharmaceutical Company Limited (TSE:4502) will increase its dividend from last year's comparable payment on the 2nd of December to ¥98.00. This will take the annual payment to 4.6% 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 Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 197% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 70%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 22.2%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 166%, which probably can't continue without putting some pressure on the balance sheet.

Takeda Pharmaceutical Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was ¥180.00, compared to the most recent full-year payment of ¥196.00. Dividend payments have grown at less than 1% a year over this period. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Takeda Pharmaceutical has grown earnings per share at 11% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Takeda Pharmaceutical's payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Just as an example, we've come across 4 warning signs for Takeda Pharmaceutical you should be aware of, and 1 of them is a bit concerning. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.