Nippon Telegraph and Telephone (TSE:9432) Is Due To Pay A Dividend Of ¥2.60

Nippon Telegraph and Telephone Corporation (TSE:9432) will pay a dividend of ¥2.60 on the 18th of December. This takes the dividend yield to 3.4%, which shareholders will be pleased with.

View our latest analysis for Nippon Telegraph and Telephone

Nippon Telegraph and Telephone's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Nippon Telegraph and Telephone's dividend was only 37% of earnings, however it was paying out 379% 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.

Over the next year, EPS is forecast to expand by 4.7%. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

Nippon Telegraph and Telephone Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ¥1.60 in 2014, and the most recent fiscal year payment was ¥5.20. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

We Could See Nippon Telegraph and Telephone's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Nippon Telegraph and Telephone has been growing its earnings per share at 9.8% a 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.

Our Thoughts On Nippon Telegraph and Telephone's Dividend

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. We don't think Nippon Telegraph and Telephone is a great stock to add to your portfolio if income is your focus.

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 2 warning signs for Nippon Telegraph and Telephone that investors should know about before committing capital to this stock. Is Nippon Telegraph and Telephone not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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