Towa Bank (TSE:8558) Is Due To Pay A Dividend Of ¥25.00

The Towa Bank, Ltd. (TSE:8558) will pay a dividend of ¥25.00 on the 1st of July. This payment means that the dividend yield will be 3.8%, which is around the industry average.

View our latest analysis for Towa Bank

Towa Bank's Dividend Forecasted To Be Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.

Having distributed dividends for at least 10 years, Towa Bank has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Towa Bank's payout ratio of 27% is a good sign as this means that earnings decently cover dividends.

EPS is set to fall by 12.1% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the future payout ratio could be 32%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥25.00. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Towa Bank's EPS has declined at around 12% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Our Thoughts On Towa Bank's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Towa Bank is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Towa Bank you should be aware of, and 1 of them can't be ignored. 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.