Ad-Sol Nissin's (TSE:3837) Upcoming Dividend Will Be Larger Than Last Year's

Ad-Sol Nissin Corporation (TSE:3837) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of June to ¥35.00. This takes the dividend yield to 2.4%, which shareholders will be pleased with.

See our latest analysis for Ad-Sol Nissin

Ad-Sol Nissin's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Ad-Sol Nissin's dividend was only 20% of earnings, however it was paying out 158% 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.

If the trend of the last few years continues, EPS will grow by 4.6% over the next 12 months. If the dividend continues on this path, the payout ratio could be 48% by next year, which we think can be pretty sustainable going forward.

Ad-Sol Nissin Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 5 years was ¥33.00 in 2020, and the most recent fiscal year payment was ¥50.00. This means that it has been growing its distributions at 8.7% per annum over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 4.6% per annum over the last five years, which admittedly is a bit slow. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Ad-Sol Nissin that investors should know about before committing capital to this stock. Is Ad-Sol Nissin not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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