Kaken Pharmaceutical's (TSE:4521) Dividend Will Be ¥75.00

Kaken Pharmaceutical Co., Ltd. (TSE:4521) will pay a dividend of ¥75.00 on the 2nd of December. This makes the dividend yield 3.7%, which will augment investor returns quite nicely.

View our latest analysis for Kaken Pharmaceutical

Kaken 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 190% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Looking forward, earnings per share is forecast to fall by 43.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 131%, which could put the dividend under pressure if earnings don't start to improve.

Kaken Pharmaceutical Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of ¥96.00 in 2014 to the most recent total annual payment of ¥150.00. This means that it has been growing its distributions at 4.6% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Kaken Pharmaceutical's EPS has fallen by approximately 14% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kaken Pharmaceutical's payments, as there could be some issues with sustaining them into the future. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Kaken Pharmaceutical that investors should know about before committing capital to this stock. 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.

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