Car Mate Mfg. Co., Ltd. (TSE:7297) has announced that it will pay a dividend of ¥15.00 per share on the 30th of June. This means the annual payment is 3.5% of the current stock price, which is above the average for the industry.
Check out our latest analysis for Car Mate Mfg
Car Mate Mfg's Projections Indicate Future Payments May Be Unsustainable
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Car Mate Mfg was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 26.1% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 105%, which is definitely a bit high to be sustainable going forward.
Car Mate Mfg Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥30.00. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Car Mate Mfg's EPS has fallen by approximately 26% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
Our Thoughts On Car Mate Mfg's Dividend
Overall, a consistent dividend is a good thing, and we think that Car Mate Mfg has the ability to continue this into the future. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
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 identified 2 warning signs for Car Mate Mfg (1 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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:7297
Flawless balance sheet established dividend payer.
