Okabe (TSE:5959) Is Due To Pay A Dividend Of ¥15.00

The board of Okabe Co., Ltd. (TSE:5959) has announced that it will pay a dividend on the 14th of March, with investors receiving ¥15.00 per share. This makes the dividend yield 3.9%, which is above the industry average.

View our latest analysis for Okabe

Okabe's Distributions May Be Difficult To Sustain

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. While Okabe is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

EPS has fallen by an average of 35.3% in the past, so this could continue over the next year. 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

The company has a long dividend track record, but it doesn't look great with cuts in the past. 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 have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Okabe's earnings per share has shrunk at 35% a year over 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.

Okabe's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Okabe's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Okabe you should be aware of, and 1 of them doesn't sit too well with us. Is Okabe not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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