Sumitomo Rubber Industries' (TSE:5110) Upcoming Dividend Will Be Larger Than Last Year's

The board of Sumitomo Rubber Industries, Ltd. (TSE:5110) has announced that it will be paying its dividend of ¥35.00 on the 5th of September, an increased payment from last year's comparable dividend. This will take the annual payment to 3.9% of the stock price, which is above what most companies in the industry pay.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Sumitomo Rubber Industries' Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Sumitomo Rubber Industries is not generating a profit, and despite this is paying out most of its free cash flow as a dividend. Paying a dividend while unprofitable is generally considered an aggressive policy, and with limited funds retained for reinvestment, growth may be slow.

Over the next year, EPS is forecast to expand by 46.5%. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

See our latest analysis for Sumitomo Rubber Industries

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was ¥50.00, compared to the most recent full-year payment of ¥70.00. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Sumitomo Rubber Industries has only grown its earnings per share at 3.7% per annum over the past five years. With no profits, we don't think Sumitomo Rubber Industries has much potential to grow the dividend in the future.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Sumitomo Rubber Industries will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Sumitomo Rubber Industries that investors should take into consideration. Is Sumitomo Rubber Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.