Towa Pharmaceutical (TSE:4553) Is Increasing Its Dividend To ¥40.00

Towa Pharmaceutical Co., Ltd. (TSE:4553) will increase its dividend from last year's comparable payment on the 26th of June to ¥40.00. The payment will take the dividend yield to 2.6%, which is in line with the average for the industry.

View our latest analysis for Towa Pharmaceutical

Towa Pharmaceutical's Projected Earnings Seem Likely To Cover Future Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Towa Pharmaceutical was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 0.2% over the next year. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥25.00 in 2015, and the most recent fiscal year payment was ¥80.00. This means that it has been growing its distributions at 12% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See Towa Pharmaceutical's Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Towa Pharmaceutical has been growing its earnings per share at 6.6% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Towa Pharmaceutical's prospects of growing its dividend payments in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Towa Pharmaceutical will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Towa Pharmaceutical is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Towa Pharmaceutical you should be aware of, and 1 of them is a bit concerning. Is Towa 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.