Toyota Motor (TSE:7203) Will Pay A Dividend Of ¥45.00

Toyota Motor Corporation (TSE:7203) will pay a dividend of ¥45.00 on the 26th of November. This will take the annual payment to 3.8% of the stock price, which is above what most companies in the industry pay.

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Toyota Motor's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Toyota Motor's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 5.8% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 30%, which we are pretty comfortable with and we think is feasible on an earnings basis.

View our latest analysis for Toyota Motor

Toyota Motor Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥40.00 in 2015, and the most recent fiscal year payment was ¥95.00. This means that it has been growing its distributions at 9.0% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Toyota Motor has been growing its earnings per share at 20% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Toyota Motor will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Toyota Motor has 3 warning signs (and 2 which are concerning) we think you should know about. 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.