The board of Suzuki Motor Corporation (TSE:7269) has announced that it will pay a dividend on the 26th of June, with investors receiving ¥55.00 per share. Although the dividend is now higher, the yield is only 1.8%, which is below the industry average.
Check out our latest analysis for Suzuki Motor
Suzuki Motor's Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Suzuki Motor was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 85% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.
Over the next year, EPS is forecast to expand by 29.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from ¥20.00 total annually to ¥110.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, Suzuki Motor's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Suzuki Motor's payments are rock solid. While Suzuki Motor is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Suzuki Motor that investors should take into consideration. Is Suzuki Motor 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:7269
Suzuki Motor
Engages in the manufacture and marketing of automobiles, motorcycles, and marine products in Japan and internationally.
Solid track record with excellent balance sheet and pays a dividend.
