Okabe Co., Ltd. (TSE:5959) will pay a dividend of ¥15.00 on the 14th of March. This will take the dividend yield to an attractive 3.9%, providing a nice boost to shareholder returns.
View our latest analysis for Okabe
Okabe Might Find It Hard To Continue The Dividend
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Okabe is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.
Over the next year, EPS might fall by 35.3% based on recent performance. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.
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 annual payment during the last 10 years was ¥18.00 in 2014, and the most recent fiscal year payment was ¥30.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% 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 Has Limited Growth Potential
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. Earnings per share has been sinking by 35% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
The Dividend Could Prove To Be Unreliable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Okabe has 2 warning signs (and 1 which can't be ignored) we think you should know about. 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:5959
Okabe
Manufactures and sells construction and civil engineering products in Japan, North America, and internationally.
Flawless balance sheet average dividend payer.