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 4.0%, which is above the industry average.

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Sumitomo Rubber Industries' Distributions May Be Difficult To Sustain

If the payments aren't sustainable, a high yield for a few years won't matter that much. Even though Sumitomo Rubber Industries is not generating a profit, it is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

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.

Check out our latest analysis for Sumitomo Rubber Industries

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥50.00 in 2015, and the most recent fiscal year payment was ¥70.00. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year over that time. 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 Is Doubtful

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. 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 forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Sumitomo Rubber Industries' Dividend Doesn't Look Great

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's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Sumitomo Rubber Industries that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.