Kokusai Electric (TSE:6525) Is Due To Pay A Dividend Of ¥18.00

The board of Kokusai Electric Corporation (TSE:6525) has announced that it will pay a dividend on the 30th of June, with investors receiving ¥18.00 per share. This will take the dividend yield to an attractive 1.4%, providing a nice boost to shareholder returns.

View our latest analysis for Kokusai Electric

Kokusai Electric's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Kokusai Electric's dividend was only 21% of earnings, however it was paying out 160% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 14.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

Kokusai Electric Doesn't Have A Long Payment History

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. It's not great to see that Kokusai Electric's earnings per share has fallen at approximately 9.3% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Kokusai Electric 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. We don't think Kokusai Electric 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Kokusai Electric that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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