Towa Pharmaceutical's (TSE:4553) Upcoming Dividend Will Be Larger Than Last Year's

Towa Pharmaceutical Co., Ltd. (TSE:4553) will increase its dividend from last year's comparable payment on the 26th of June to ¥40.00. This takes the dividend yield to 2.9%, which shareholders will be pleased with.

View our latest analysis for Towa Pharmaceutical

Towa Pharmaceutical's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Towa Pharmaceutical was earning enough to cover the dividend, but free cash flows weren't positive. 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 fall by 0.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 20%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut 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 works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Towa Pharmaceutical has impressed us by growing EPS at 6.6% per 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.

Our Thoughts On Towa Pharmaceutical's Dividend

Overall, we always like to see the dividend being raised, but we don't think Towa Pharmaceutical will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Towa Pharmaceutical has 3 warning signs (and 2 which don't sit too well with us) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.