Kokusai Electric (TSE:6525) Will 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 1.6%, providing a nice boost to shareholder returns.

View our latest analysis for Kokusai Electric

Kokusai Electric's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Kokusai Electric was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

The next year is set to see EPS grow by 17.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 22% by next year, which is in a pretty sustainable range.

Kokusai Electric Doesn't Have A Long Payment History

It is tough to make a judgement on how stable a dividend is when the company hasn't been paying one for very long. 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. Let's not jump to conclusions as things might not be as good as they appear on the surface. 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 the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Kokusai Electric's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Kokusai Electric has been making. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Kokusai Electric that you should be aware of before investing. 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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