Nagoya Railroad (TSE:9048) Will Pay A Larger Dividend Than Last Year At ¥37.50

Nagoya Railroad Co., Ltd. (TSE:9048) will increase its dividend from last year's comparable payment on the 27th of June to ¥37.50. This makes the dividend yield 2.1%, which is above the industry average.

See our latest analysis for Nagoya Railroad

Nagoya Railroad's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Nagoya Railroad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to fall by 6.7%. If the dividend continues along recent trends, we estimate the payout ratio could be 22%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥22.50 in 2015, and the most recent fiscal year payment was ¥37.50. This means that it has been growing its distributions at 5.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Nagoya Railroad might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nagoya Railroad hasn't seen much change in its earnings per share over the last five years. If Nagoya Railroad is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Nagoya Railroad will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Nagoya Railroad you should be aware of, and 2 of them make us uncomfortable. 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.