Meiji Electric IndustriesLtd's (TSE:3388) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Meiji Electric Industries Co.,Ltd. (TSE:3388) has announced that it will be increasing its dividend by 3.1% on the 6th of June to ¥33.00, up from last year's comparable payment of ¥32.00. This makes the dividend yield 3.5%, which is above the industry average.

Check out our latest analysis for Meiji Electric IndustriesLtd

Meiji Electric IndustriesLtd's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Meiji Electric IndustriesLtd's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Unless the company can turn things around, EPS could fall by 5.9% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 29%, which is definitely feasible to continue.

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 ¥15.00 in 2014, and the most recent fiscal year payment was ¥52.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Meiji Electric IndustriesLtd's earnings per share has fallen at approximately 5.9% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Meiji Electric IndustriesLtd's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Meiji Electric IndustriesLtd's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

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. Case in point: We've spotted 2 warning signs for Meiji Electric IndustriesLtd (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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