JTEKT (TSE:6473) Will Pay A Larger Dividend Than Last Year At ¥30.00

JTEKT Corporation (TSE:6473) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of November to ¥30.00. This will take the dividend yield to an attractive 4.9%, providing a nice boost to shareholder returns.

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JTEKT's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the dividend made up 124% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to grow by 41.4% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 88% which is a bit high but can definitely be sustainable.

View our latest analysis for JTEKT

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. Since 2015, the dividend has gone from ¥20.00 total annually to ¥60.00. This means that it has been growing its distributions at 12% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

JTEKT Might Find It Hard To Grow Its Dividend

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. JTEKT has impressed us by growing EPS at 37% per year over the past five years. EPS has been growing well, but JTEKT has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

JTEKT's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think JTEKT will make a great income stock. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for JTEKT you should be aware of, and 1 of them is potentially serious. 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.