NICHIDEN's (TSE:9902) Dividend Will Be ¥35.00
NICHIDEN Corporation (TSE:9902) will pay a dividend of ¥35.00 per share on December 9, yielding 2.4%. The company has a history of dividend cuts, with a payout ratio of 112% of free cash flows, raising concerns about sustainability. Despite a projected EPS growth of 9.2%, the high cash payout ratio may expose the dividend to cuts. While the dividend is increasing, the lack of cash flow makes it a less attractive income stock. Investors should be cautious and consider other factors before investing.
NICHIDEN Corporation's (TSE:9902) investors are due to receive a payment of ¥35.00 per share on 9th of December. This makes the dividend yield about the same as the industry average at 2.4%.
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NICHIDEN's Payment Could Potentially Have Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, NICHIDEN's dividend was only 41% of earnings, however it was paying out 112% of free 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.
If the trend of the last few years continues, EPS will grow by 9.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for NICHIDEN
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 ¥25.00, compared to the most recent full-year payment of ¥70.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. NICHIDEN 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.
NICHIDEN Could Grow Its Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. NICHIDEN has impressed us by growing EPS at 9.2% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for NICHIDEN that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
