Eisai (TSE:4523) Will Pay A Dividend Of ¥80.00

Eisai Co., Ltd. (TSE:4523) has announced that it will pay a dividend of ¥80.00 per share on the 29th of May. This makes the dividend yield 3.7%, which will augment investor returns quite nicely.

Check out our latest analysis for Eisai

Eisai's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Eisai's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 2,698% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share is forecast to rise by 5.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 73%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Eisai 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 ¥150.00 in 2015, and the most recent fiscal year payment was ¥160.00. Its dividends have grown at less than 1% per annum over this time frame. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. In the last five years, Eisai's earnings per share has shrunk at approximately 9.2% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

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 Eisai's payments, as there could be some issues with sustaining them into the future. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Eisai that investors need to be conscious of moving forward. Is Eisai 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.