Hisamitsu Pharmaceutical (TSE:4530) Is Increasing Its Dividend To ¥45.00

Hisamitsu Pharmaceutical Co., Inc. (TSE:4530) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of November to ¥45.00. This makes the dividend yield about the same as the industry average at 2.3%.

View our latest analysis for Hisamitsu Pharmaceutical

Hisamitsu Pharmaceutical's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Hisamitsu Pharmaceutical's dividend was only 46% of earnings, however it was paying out 122% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 53.5%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Hisamitsu Pharmaceutical Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was ¥70.00 in 2014, and the most recent fiscal year payment was ¥86.00. This implies that the company grew its distributions at a yearly rate of about 2.1% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. In the last five years, Hisamitsu Pharmaceutical's earnings per share has shrunk at approximately 3.7% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Hisamitsu Pharmaceutical's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Hisamitsu Pharmaceutical that investors should know about before committing capital to this stock. Is Hisamitsu Pharmaceutical not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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