Eisai (TSE:4523) Is Due To Pay A Dividend Of ¥80.00

Eisai Co., Ltd. (TSE:4523) will pay a dividend of ¥80.00 on the 19th of November. This means the annual payment is 3.1% of the current stock price, which is above the average for the industry.

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Eisai's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Eisai was paying out quite a large proportion of both earnings and cash flow, with the dividend being 315% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Earnings per share is forecast to rise by 11.2% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 81% which is a bit high but can definitely be sustainable.

Check out our latest analysis for Eisai

Eisai Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from ¥150.00 total annually to ¥160.00. Dividend payments have been growing, but very slowly over the period. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Eisai's earnings per share has shrunk at 16% a year over 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. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Eisai that investors should take into consideration. 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.