Nippon Gas Co., Ltd.'s (TSE:8174) investors are due to receive a payment of ¥46.25 per share on 26th of June. This takes the dividend yield to 4.5%, which shareholders will be pleased with.
View our latest analysis for Nippon Gas
Nippon Gas' Projections Indicate Future Payments May Be Unsustainable
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Nippon Gas' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
Over the next year, EPS is forecast to expand by 12.2%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 122% over the next year.
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 ¥8.67 in 2014, and the most recent fiscal year payment was ¥92.50. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
Dividend Growth Could Be Constrained
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. It's encouraging to see that Nippon Gas has been growing its earnings per share at 12% a year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Nippon Gas will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Nippon Gas that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About TSE:8174
Nippon Gas
Engages in the supply and sale of LP gas and natural gas in Japan.
Flawless balance sheet established dividend payer.