Kuraray (TSE:3405) Is Paying Out A Dividend Of ¥27.00

Kuraray Co., Ltd. (TSE:3405) will pay a dividend of ¥27.00 on the 30th of March. The dividend yield will be 3.4% based on this payment which is still above the industry average.

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Kuraray's Projections Indicate Future Payments May Be Unsustainable

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Kuraray's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share is forecast to rise by 39.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 154%, which probably can't continue without putting some pressure on the balance sheet.

View our latest analysis for Kuraray

Kuraray Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was ¥36.00 in 2015, and the most recent fiscal year payment was ¥54.00. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. Kuraray has impressed us by growing EPS at 15% per 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.

Our Thoughts On Kuraray's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kuraray's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

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. Taking the debate a bit further, we've identified 3 warning signs for Kuraray 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.