Tenryu Saw Mfg (TSE:5945) Will Pay A Smaller Dividend Than Last Year

Tenryu Saw Mfg. Co., Ltd. (TSE:5945) has announced that on 1st of July, it will be paying a dividend of¥40.00, which a reduction from last year's comparable dividend. However, the dividend yield of 3.3% is still a decent boost to shareholder returns.

Check out our latest analysis for Tenryu Saw Mfg

Tenryu Saw Mfg's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Tenryu Saw Mfg's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Unless the company can turn things around, EPS could fall by 1.8% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 41%, which is definitely feasible to continue.

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. The dividend has gone from an annual total of ¥22.50 in 2014 to the most recent total annual payment of ¥55.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.3% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Tenryu Saw Mfg's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Tenryu Saw Mfg's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Tenryu Saw Mfg that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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