Tosoh (TSE:4042) Has Announced A Dividend Of ¥50.00

Tosoh Corporation (TSE:4042) has announced that it will pay a dividend of ¥50.00 per share on the 4th of December. This means the annual payment is 4.4% of the current stock price, which is above the average for the industry.

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Tosoh's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last dividend, Tosoh is earning enough to cover the payment, but then it makes up 121% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 9.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 57%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Tosoh

Tosoh Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from ¥12.00 total annually to ¥100.00. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Although it's important to note that Tosoh's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.3% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Tosoh that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.