Nippon Yusen Kabushiki Kaisha's (TSE:9101) Upcoming Dividend Will Be Larger Than Last Year's

Nippon Yusen Kabushiki Kaisha's (TSE:9101) dividend will be increasing from last year's payment of the same period to ¥180.00 on 20th of June. This makes the dividend yield 6.9%, which is above the industry average.

View our latest analysis for Nippon Yusen Kabushiki Kaisha

Nippon Yusen Kabushiki Kaisha's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Nippon Yusen Kabushiki Kaisha's dividend was only 20% of earnings, however it was paying out 244% 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 fall by 18.2%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 44%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 ¥16.67 in 2015, and the most recent fiscal year payment was ¥360.00. This works out to be a compound annual growth rate (CAGR) of approximately 36% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nippon Yusen Kabushiki Kaisha has seen EPS rising for the last five years, at 20% per annum. Nippon Yusen Kabushiki Kaisha definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Nippon Yusen Kabushiki Kaisha's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Nippon Yusen Kabushiki Kaisha's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Nippon Yusen Kabushiki Kaisha 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Nippon Yusen Kabushiki Kaisha (of which 1 is potentially serious!) 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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