Astellas Pharma’s (TSE:4503) Upcoming Dividend Will Be Larger Than Last Year’s

Astellas Pharma Inc. (TSE:4503) has announced that it will be increasing its dividend from last year’s comparable payment on the 2nd of December to ¥39.00. This will take the annual payment to 4.7% of the stock price, which is above what most companies in the industry pay.

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Astellas Pharma’s Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. Prior to this announcement, the company was paying out 162% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 74%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don’t think there is much reason to worry.

The next 12 months is set to see EPS grow by 7.6%. If the dividend continues on its recent course, the payout ratio in 12 months could be 170%, which is a bit high and could start applying pressure to the balance sheet.

Check out our latest analysis for Astellas Pharma

Astellas Pharma 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 ¥28.00 in 2015, and the most recent fiscal year payment was ¥78.00. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. Let’s not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 15% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn’t be feeling too comfortable.

Our Thoughts On Astellas Pharma’s Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we’ve picked out 3 warning signs for Astellas Pharma that investors should know about before committing capital to this stock. Is Astellas Pharma 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.