GMB (TSE:7214) Is Due To Pay A Dividend Of ¥20.00

GMB Corporation (TSE:7214) has announced that it will pay a dividend of ¥20.00 per share on the 24th of June. This will take the dividend yield to an attractive 4.2%, providing a nice boost to shareholder returns.

See our latest analysis for GMB

GMB's Future Dividends May Potentially Be At Risk

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 204% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 29%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Earnings per share could rise by 42.7% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 358%, which probably can't continue without starting to put some pressure on the balance sheet.

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. The most recent annual payment of ¥40.00 is about the same as the annual payment 10 years ago. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

GMB's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. GMB has seen EPS rising for the last five years, at 43% per annum. EPS has been growing well, but GMB has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for GMB (1 makes us a bit uncomfortable!) 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.