Hirakawa Hewtech (TSE:5821) Is Paying Out A Larger Dividend Than Last Year

The board of Hirakawa Hewtech Corp. (TSE:5821) has announced that it will be paying its dividend of ¥22.00 on the 9th of December, an increased payment from last year's comparable dividend. This takes the dividend yield to 3.6%, which shareholders will be pleased with.

Check out our latest analysis for Hirakawa Hewtech

Hirakawa Hewtech's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Hirakawa Hewtech's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 11.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 36% by next year, which is in a pretty sustainable range.

Hirakawa Hewtech Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from ¥11.00 total annually to ¥45.00. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Hirakawa Hewtech has seen earnings per share falling at 2.5% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Hirakawa Hewtech that investors should take into consideration. Is Hirakawa Hewtech 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.