Nippon Signal (TSE:6741) Will Pay A Dividend Of ¥13.00

The board of Nippon Signal Co., Ltd. (TSE:6741) has announced that it will pay a dividend of ¥13.00 per share on the 2nd of December. This will take the dividend yield to an attractive 4.0%, providing a nice boost to shareholder returns.

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Nippon Signal'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, Nippon Signal's dividend was only 32% of earnings, however it was paying out 297% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 5.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

See our latest analysis for Nippon Signal

Nippon Signal Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was ¥16.00 in 2015, and the most recent fiscal year payment was ¥43.00. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Nippon Signal has impressed us by growing EPS at 5.7% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Nippon Signal will make a great income stock. While Nippon Signal is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Nippon Signal that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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