Yamaha Motor (TSE:7272) Will Pay A Dividend Of ¥25.00

The board of Yamaha Motor Co., Ltd. (TSE:7272) has announced that it will pay a dividend of ¥25.00 per share on the 26th of March. This makes the dividend yield 4.4%, which will augment investor returns quite nicely.

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Yamaha Motor's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 101% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 25.5%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 90% - on the higher side, but we wouldn't necessarily say this is unsustainable.

See our latest analysis for Yamaha Motor

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥11.67 in 2015, and the most recent fiscal year payment was ¥50.00. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Yamaha Motor has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Yamaha Motor's Dividend Might Lack Growth

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Yamaha Motor has impressed us by growing EPS at 20% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Strong earnings growth means Yamaha Motor has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. 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. To that end, Yamaha Motor has 3 warning signs (and 2 which are a bit concerning) we think you should know about. Is Yamaha 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.