Sumitomo Rubber Industries (TSE:5110) Will Pay A Dividend Of ¥35.00

Sumitomo Rubber Industries, Ltd.'s (TSE:5110) investors are due to receive a payment of ¥35.00 per share on 30th of March. This makes the dividend yield 3.9%, which is above the industry average.

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Sumitomo Rubber Industries' Distributions May Be Difficult To Sustain

A big dividend yield for a few years doesn't mean much if it can't be sustained. Even in the absence of profits, Sumitomo Rubber Industries is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Over the next year, EPS is forecast to expand by 43.6%. The company seems to be going down the right path, but it will take a little bit longer than a year to cross over into 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

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from ¥50.00 total annually to ¥70.00. This implies that the company grew its distributions at a yearly rate of about 3.4% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Sumitomo Rubber Industries' EPS has declined at around 8.1% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

We're Not Big Fans Of Sumitomo Rubber Industries' Dividend

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. We don't think that this is a great candidate to be an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Sumitomo Rubber Industries that you should be aware of before investing. 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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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.