Hisamitsu Pharmaceutical (TSE:4530) Is Paying Out A Larger Dividend Than Last Year

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 2.2%.

See our latest analysis for Hisamitsu Pharmaceutical

Hisamitsu Pharmaceutical's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last payment was quite easily covered by earnings, but it made up 122% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 13.7%. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.

Hisamitsu 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 ¥70.00 in 2014 to the most recent total annual payment of ¥86.00. This works out to be a compound annual growth rate (CAGR) of approximately 2.1% a year over that time. 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.

Hisamitsu Pharmaceutical May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Over the past five years, it looks as though Hisamitsu Pharmaceutical's EPS has declined at around 3.7% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. 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

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Hisamitsu Pharmaceutical that investors need to be conscious of moving forward. 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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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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