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
GMB's Future Dividends May Potentially Be At Risk
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 611% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 20%. 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.
Over the next year, EPS could expand by 50.2% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 1,017%, 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 most recent annual payment of ¥40.00 is about the same as the annual payment 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 seen EPS rising for the last five years, at 50% per annum. Although earnings per share is up nicely GMB is paying out 611% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think GMB's payments are rock solid. 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. We don't think GMB is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 identified 4 warning signs for GMB (1 makes us a bit uncomfortable!) that you should be aware of before investing. 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.
