Daihatsu Diesel Mfg (TSE:6023) Has Announced That It Will Be Increasing Its Dividend To ¥33.00

The board of Daihatsu Diesel Mfg. Co., Ltd. (TSE:6023) has announced that the dividend on 1st of July will be increased to ¥33.00, which will be 18% higher than last year's payment of ¥28.00 which covered the same period. The payment will take the dividend yield to 1.8%, which is in line with the average for the industry.

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 Daihatsu Diesel Mfg's stock price has increased by 62% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Daihatsu Diesel Mfg

Daihatsu Diesel Mfg's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Daihatsu Diesel Mfg was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share could rise by 26.2% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

Daihatsu Diesel Mfg Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was ¥8.00, compared to the most recent full-year payment of ¥28.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Daihatsu Diesel Mfg has been growing its earnings per share at 26% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Daihatsu Diesel Mfg's payments are rock solid. While Daihatsu Diesel Mfg is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for Daihatsu Diesel Mfg that investors should take into consideration. Is Daihatsu Diesel Mfg 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.