Astellas Pharma (TSE:4503) Will Pay A Dividend Of ¥39.00

Astellas Pharma Inc. (TSE:4503) has announced that it will pay a dividend of ¥39.00 per share on the 3rd of June. This will take the dividend yield to an attractive 3.9%, providing a nice boost to shareholder returns.

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Estimates Indicate Astellas Pharma's Could Struggle to Maintain Dividend Payments In The Future

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 109% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 42%. 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.

The next 12 months is set to see EPS grow by 1.7%. If the dividend continues on its recent course, the payout ratio in 12 months could be 121%, which is a bit high and could start applying pressure to the balance sheet.

See our latest analysis for Astellas Pharma

Astellas Pharma Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ¥28.00 in 2015, and the most recent fiscal year payment was ¥78.00. This means that it has been growing its distributions at 11% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Astellas Pharma May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Unfortunately, Astellas Pharma's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Astellas Pharma's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Astellas Pharma that investors should take into consideration. Is Astellas Pharma not quite the opportunity you were looking for? Why not check out our selection of top 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.