Hokuriku Electric IndustryLtd (TSE:6989) Is Paying Out A Dividend Of ¥55.00

The board of Hokuriku Electric Industry Co.,Ltd. (TSE:6989) has announced that it will pay a dividend on the 1st of July, with investors receiving ¥55.00 per share. This means the annual payment is 3.8% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Hokuriku Electric IndustryLtd

Hokuriku Electric IndustryLtd Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Hokuriku Electric IndustryLtd was paying out 94% of earnings, but a comparatively small 23% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 6.5% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 102%, which could put the dividend in jeopardy if the company's earnings don't improve.

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 dividend has gone from an annual total of ¥30.00 in 2014 to the most recent total annual payment of ¥55.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Hokuriku Electric IndustryLtd's earnings per share has shrunk at approximately 6.5% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 4 warning signs for Hokuriku Electric IndustryLtd that investors should know about before committing capital to this stock. 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.