TOTO's (TSE:5332) Dividend Will Be ¥50.00

TOTO LTD. (TSE:5332) will pay a dividend of ¥50.00 on the 4th of June. This means the annual payment is 2.5% of the current stock price, which is above the average for the industry.

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TOTO'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. Prior to this announcement, the company was paying out 420% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share is forecast to rise by 29.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

See our latest analysis for TOTO

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 2015, the annual payment back then was ¥52.00, compared to the most recent full-year payment of ¥100.00. This means that it has been growing its distributions at 6.8% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. TOTO might have put its house in order since then, but we remain cautious.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. TOTO's EPS has fallen by approximately 23% 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. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

TOTO's Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, TOTO has 3 warning signs (and 1 which can't be ignored) we think you should know about. Is TOTO not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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