Yokohama Rubber Company (TSE:5101) Is Due To Pay A Dividend Of ¥48.00

The Yokohama Rubber Company, Limited (TSE:5101) has announced that it will pay a dividend of ¥48.00 per share on the 1st of September. The payment will take the dividend yield to 2.8%, which is in line with the average for the industry.

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Yokohama Rubber Company'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. Before making this announcement, Yokohama Rubber Company was paying a whopping 272% as a dividend, but this only made up 25% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 13.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Yokohama Rubber Company

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥56.00 in 2015, and the most recent fiscal year payment was ¥102.00. This means that it has been growing its distributions at 6.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Yokohama Rubber Company might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Yokohama Rubber Company has grown earnings per share at 15% per year over the past five years. Yokohama Rubber Company definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Yokohama Rubber Company's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Yokohama Rubber Company is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Yokohama Rubber Company you should be aware of, and 1 of them makes us a bit uncomfortable. Is Yokohama Rubber Company 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.