The board of Sanei Ltd. (TSE:6230) has announced that it will pay a dividend on the 2nd of December, with investors receiving ¥55.00 per share. This makes the dividend yield about the same as the industry average at 2.3%.
Check out our latest analysis for Sanei
Sanei's Dividend Is Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Sanei was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Over the next year, EPS is forecast to expand by 6.3%. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.
Sanei Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2021, the annual payment back then was ¥96.00, compared to the most recent full-year payment of ¥110.00. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
Dividend Growth Potential Is Shaky
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. Sanei's EPS has fallen by approximately 28% per year during 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Sanei that investors should know about before committing capital to this stock. 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.
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About TSE:6230
Solid track record with adequate balance sheet.
