GMB Corporation (TSE:7214) will pay a dividend of ¥20.00 on the 24th of June. This takes the dividend yield to 4.0%, which shareholders will be pleased with.
Check out our latest analysis for GMB
Estimates Indicate GMB's Could Struggle to Maintain Dividend Payments In The Future
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, GMB's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to grow by 50.2% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 1,026%, which probably can't continue without starting to put some pressure on the balance sheet.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The payments haven't really changed that much since 10 years ago. 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 Could Be Constrained
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. GMB has impressed us by growing EPS at 50% per year over the past five years. While EPS is growing rapidly, GMB paid out a very high 1,427% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.
In Summary
Overall, we always like to see the dividend being raised, but we don't think GMB will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, GMB has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is GMB not quite the opportunity you were looking for? Why not check out our selection of top 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.
About TSE:7214
GMB
Manufactures and sells automotive parts in Japan, the United States, South Korea, China, Europe, and internationally.
Good value slight.
