Shoei Yakuhin Co.,Ltd.'s (TSE:3537) investors are due to receive a payment of ¥38.00 per share on 26th of June. This means the dividend yield will be fairly typical at 2.6%.
View our latest analysis for Shoei YakuhinLtd
Shoei YakuhinLtd's Payment Could Potentially Have Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Shoei YakuhinLtd'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.
Looking forward, earnings per share could rise by 15.5% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.
Shoei YakuhinLtd Is Still Building Its Track Record
It is great to see that Shoei YakuhinLtd has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 9 years was ¥13.33 in 2015, and the most recent fiscal year payment was ¥38.00. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Shoei YakuhinLtd has impressed us by growing EPS at 15% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Shoei YakuhinLtd's payments, as there could be some issues with sustaining them into the future. While Shoei YakuhinLtd is earning enough to cover the payments, the cash flows are lacking. We don't think Shoei YakuhinLtd is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Shoei YakuhinLtd that you should be aware of before investing. 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.
About TSE:3537
Shoei YakuhinLtd
Engages in trading of chemicals, daily necessities, and civil engineering and construction materials in Japan and internationally.
Solid track record with excellent balance sheet.
