Nippon Gas (TSE:8174) Is Paying Out A Larger Dividend Than Last Year

Nippon Gas Co., Ltd.'s (TSE:8174) dividend will be increasing from last year's payment of the same period to ¥51.50 on 19th of November. This will take the annual payment to 3.6% of the stock price, which is above what most companies in the industry pay.

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Nippon Gas' Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Nippon Gas' dividend made up quite a large proportion of earnings but only 67% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share is forecast to rise by 8.1% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 95% - on the higher side, but we wouldn't necessarily say this is unsustainable.

See our latest analysis for Nippon Gas

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was ¥8.67, compared to the most recent full-year payment of ¥103.00. This means that it has been growing its distributions at 28% per annum over that time. Nippon Gas has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Nippon Gas' Dividend Might Lack Growth

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. We are encouraged to see that Nippon Gas has grown earnings per share at 11% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Nippon Gas 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Nippon Gas that you should be aware of before investing. Is Nippon Gas 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.