Mochida Pharmaceutical (TSE:4534) Will Pay A Dividend Of ¥40.00

Mochida Pharmaceutical Co., Ltd. (TSE:4534) will pay a dividend of ¥40.00 on the 1st of July. This means that the annual payment will be 2.5% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Mochida Pharmaceutical

Mochida Pharmaceutical's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand by 143.8%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 39% which brings it into quite a comfortable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was ¥67.50, compared to the most recent full-year payment of ¥80.00. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Mochida Pharmaceutical's EPS has declined at around 19% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Mochida Pharmaceutical's Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Mochida Pharmaceutical (1 doesn't sit too well with us!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.