Nippon RietecLtd (TSE:1938) Is Increasing Its Dividend To ¥82.00

Nippon Rietec Co.,Ltd. (TSE:1938) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of June to ¥82.00. This makes the dividend yield 3.5%, which is above the industry average.

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Nippon RietecLtd's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Nippon RietecLtd's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share could rise by 4.5% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.

See our latest analysis for Nippon RietecLtd

Nippon RietecLtd Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of ¥10.00 in 2016 to the most recent total annual payment of ¥82.00. This means that it has been growing its distributions at 23% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Nippon RietecLtd May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, Nippon RietecLtd has only grown its earnings per share at 4.5% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Nippon RietecLtd's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Nippon RietecLtd is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Nippon RietecLtd 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.

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