Takeda Pharmaceutical's (TSE:4502) Upcoming Dividend Will Be Larger Than Last Year's

Takeda Pharmaceutical Company Limited (TSE:4502) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of December to ¥98.00. This takes the dividend yield to 4.8%, which shareholders will be pleased with.

Check out our latest analysis for Takeda Pharmaceutical

Takeda Pharmaceutical Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is 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%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share is forecast to rise by 23.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 165%, which probably can't continue without putting some pressure on the balance sheet.

Takeda Pharmaceutical Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of ¥180.00 in 2014 to the most recent total annual payment of ¥196.00. Its dividends have grown at less than 1% per annum over this time frame. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Takeda Pharmaceutical Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Takeda Pharmaceutical has seen EPS rising for the last five years, at 11% per annum. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

Our Thoughts On Takeda Pharmaceutical's Dividend

Overall, we always like to see the dividend being raised, but we don't think Takeda Pharmaceutical will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.

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 4 warning signs for Takeda Pharmaceutical (1 is concerning!) that you should be aware of before investing. Is Takeda Pharmaceutical not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.