Suzuki Motor Corporation (TSE:7269) will pay a dividend of ¥55.00 on the 26th of June. Even though the dividend went up, the yield is still quite low at only 1.6%.
See our latest analysis for Suzuki Motor
Suzuki Motor's Earnings Easily Cover The Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. 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 27.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ¥20.00 in 2014 to the most recent total annual payment of ¥110.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Suzuki Motor's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Suzuki Motor will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Suzuki Motor that investors should know about before committing capital to this stock. 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.
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.
