Aisan Industry's (TSE:7283) Upcoming Dividend Will Be Larger Than Last Year's

The board of Aisan Industry Co., Ltd. (TSE:7283) has announced that it will be paying its dividend of ¥38.00 on the 27th of May, an increased payment from last year's comparable dividend. This makes the dividend yield 3.5%, which is above the industry average.

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Aisan Industry's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Aisan Industry was paying only paying out a fraction of earnings, but the payment was a massive 28,894% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 11.1%. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Aisan Industry

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥28.00 in 2015, and the most recent fiscal year payment was ¥76.00. This means that it has been growing its distributions at 11% per annum over that time. Aisan Industry 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.

The Dividend Looks Likely To Grow

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. It's encouraging to see that Aisan Industry has been growing its earnings per share at 31% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Aisan Industry's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Aisan Industry's payments are rock solid. While Aisan Industry is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Aisan Industry that investors need to be conscious of moving forward. Is Aisan Industry 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.