Howa Machinery (TSE:6203) Has Announced A Dividend Of ¥20.00

The board of Howa Machinery, Ltd. (TSE:6203) has announced that it will pay a dividend of ¥20.00 per share on the 27th of June. Based on this payment, the dividend yield will be 1.9%, which is fairly typical for the industry.

Check out our latest analysis for Howa Machinery

Howa Machinery's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Howa Machinery's Could Struggle to Maintain Dividend Payments In The Future

Howa Machinery's Future Dividends May Potentially Be At Risk

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Even in the absence of profits, Howa Machinery is paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Earnings per share is forecast to rise by 117.9% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Howa Machinery Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The payments haven't really changed that much since 10 years ago. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Howa Machinery's earnings per share has shrunk at 33% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Howa Machinery's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Howa Machinery (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.