Fuji Pharma's (TSE:4554) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Fuji Pharma Co., Ltd. (TSE:4554) has announced that the dividend on 23rd of December will be increased to ¥22.50, which will be 13% higher than last year's payment of ¥20.00 which covered the same period. This will take the annual payment to 2.8% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Fuji Pharma

Fuji Pharma's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Fuji Pharma's earnings easily covered the dividend, but free cash flows were negative. 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 fall by 10.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 20%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Fuji Pharma Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from ¥22.00 total annually to ¥40.00. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Fuji Pharma has impressed us by growing EPS at 17% per year over the past five years. Fuji Pharma definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Fuji Pharma's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Fuji Pharma is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. Just as an example, we've come across 4 warning signs for Fuji Pharma you should be aware of, and 2 of them are potentially serious. 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.

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