Sumitomo Rubber Industries (TSE:5110) Will Pay A Dividend Of ¥29.00

The board of Sumitomo Rubber Industries, Ltd. (TSE:5110) has announced that it will pay a dividend of ¥29.00 per share on the 5th of September. This will take the dividend yield to an attractive 3.5%, providing a nice boost to shareholder returns.

Check out our latest analysis for Sumitomo Rubber Industries

Sumitomo Rubber Industries' Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Sumitomo Rubber Industries' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 3.2%. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

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 ¥30.00 in 2014, and the most recent fiscal year payment was ¥58.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.8% a year 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. Sumitomo Rubber Industries might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Sumitomo Rubber Industries has grown earnings per share at 13% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Sumitomo Rubber Industries' prospects of growing its dividend payments in the future.

We Really Like Sumitomo Rubber Industries' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Sumitomo Rubber Industries that investors should know about before committing capital to this stock. 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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