Chino's (TSE:6850) Upcoming Dividend Will Be Larger Than Last Year's

Chino Corporation's (TSE:6850) periodic dividend will be increasing on the 30th of June to ¥45.00, with investors receiving 13% more than last year's ¥40.00. This will take the annual payment to 2.9% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Chino

Chino'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. Based on the last payment, Chino was paying only paying out a fraction of earnings, but the payment was a massive 154% of 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.

Over the next year, EPS is forecast to expand by 11.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥35.00 in 2014, and the most recent fiscal year payment was ¥65.00. This implies that the company grew its distributions at a yearly rate of about 6.4% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Chino might have put its house in order since then, but we remain cautious.

Chino Could Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Chino has seen EPS rising for the last five years, at 5.4% per annum. Chino definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Chino will make a great income stock. While Chino is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Chino that investors should take into consideration. 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.