NPC (TSE:6255) Has Affirmed Its Dividend Of ¥10.00

NPC Incorporated's (TSE:6255) investors are due to receive a payment of ¥10.00 per share on 1st of December. Based on this payment, the dividend yield on the company's stock will be 1.5%, which is an attractive boost to shareholder returns.

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NPC's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, NPC was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to fall by 0.8% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 18%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for NPC

NPC's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2018, the annual payment back then was ¥2.00, compared to the most recent full-year payment of ¥10.00. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. NPC has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. We are encouraged to see that NPC has grown earnings per share at 15% per year over the past five years. NPC definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like NPC's Dividend

Overall, we like to see the dividend staying consistent, and we think NPC might even raise payments in the future. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for NPC (of which 1 is significant!) you should know about. 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.