Car Mate Mfg (TSE:7297) Is Due To Pay A Dividend Of ¥15.00

The board of Car Mate Mfg. Co., Ltd. (TSE:7297) has announced that it will pay a dividend on the 2nd of December, with investors receiving ¥15.00 per share. Based on this payment, the dividend yield will be 3.2%, which is fairly typical for the industry.

Check out our latest analysis for Car Mate Mfg

Car Mate Mfg Is Paying Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, the dividend made up 99% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Looking forward, EPS could fall by 27.0% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 144%, which could put the dividend under pressure if earnings don't start to improve.

Car Mate Mfg Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥20.00 in 2014, and the most recent fiscal year payment was ¥30.00. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Car Mate Mfg's EPS has fallen by approximately 27% 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Car Mate Mfg's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Car Mate Mfg you should be aware of, and 2 of them shouldn't be ignored. Is Car Mate Mfg 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.

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