SWCC (TSE:5805) Is Increasing Its Dividend To ¥70.00

SWCC Corporation (TSE:5805) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of June to ¥70.00. Even though the dividend went up, the yield is still quite low at only 1.3%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that SWCC's stock price has increased by 64% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for SWCC

SWCC's Projected Earnings Seem Likely To Cover Future Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, SWCC was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Looking forward, earnings per share is forecast to rise by 12.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.

SWCC Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from ¥10.00 total annually to ¥110.00. This means that it has been growing its distributions at 27% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. SWCC has seen EPS rising for the last five years, at 8.5% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payments look okay by most measures, the lack of cash flow could definitely cause problems for them in the future. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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. Taking the debate a bit further, we've identified 1 warning sign for SWCC that investors need to be conscious of moving forward. Is SWCC 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.