Towa Pharmaceutical (TSE:4553) Is Paying Out A Dividend Of ¥40.00

Towa Pharmaceutical Co., Ltd.'s (TSE:4553) investors are due to receive a payment of ¥40.00 per share on 26th of June. This means the dividend yield will be fairly typical at 2.5%.

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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. Prior to this announcement, Towa Pharmaceutical's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 1.3% over the next year. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Towa Pharmaceutical

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from ¥38.33 total annually to ¥80.00. This means that it has been growing its distributions at 7.6% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Towa Pharmaceutical might have put its house in order since then, but we remain cautious.

We Could See Towa Pharmaceutical's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Towa Pharmaceutical has been growing its earnings per share at 8.6% 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

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Towa Pharmaceutical's payments, as there could be some issues with sustaining them into the future. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Towa Pharmaceutical has 2 warning signs (and 1 which is a bit concerning) we think you should know about. 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.