Nishi-Nippon Railroad (TSE:9031) Is Due To Pay A Dividend Of ¥25.00

Nishi-Nippon Railroad Co., Ltd. (TSE:9031) has announced that it will pay a dividend of ¥25.00 per share on the 30th of June. This will take the dividend yield to an attractive 1.8%, providing a nice boost to shareholder returns.

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Nishi-Nippon Railroad's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Nishi-Nippon Railroad's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

EPS is set to fall by 10.5% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 15%, which is comfortable for the company to continue in the future.

View our latest analysis for Nishi-Nippon Railroad

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. Since 2015, the annual payment back then was ¥30.00, compared to the most recent full-year payment of ¥50.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Nishi-Nippon Railroad has seen EPS rising for the last five years, at 46% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Nishi-Nippon Railroad's Dividend

Overall, we always like to see the dividend being raised, but we don't think Nishi-Nippon Railroad will make a great income stock. While Nishi-Nippon Railroad 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Nishi-Nippon Railroad (of which 2 are concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.