Nagoya Railroad's (TSE:9048) Dividend Will Be Increased To ¥37.50

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

Nagoya Railroad's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Nagoya Railroad's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to fall by 7.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 22%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Check out our latest analysis for Nagoya Railroad

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, Nagoya Railroad's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While growth may be thin on the ground, Nagoya Railroad could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Nagoya Railroad's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Nagoya Railroad is earning enough to cover the payments, the cash flows are lacking. We don't think Nagoya Railroad is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Nagoya Railroad (2 are a bit concerning!) that you should be aware of before investing. Is Nagoya Railroad not quite the opportunity you were looking for? Why not check out our selection of top 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.