Hirata's (TSE:6258) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Hirata Corporation (TSE:6258) has announced that it will be paying its dividend of ¥120.00 on the 6th of June, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.2%, which is fairly typical for the industry.

View our latest analysis for Hirata

Hirata's Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Hirata's earnings easily covered the dividend, but free cash flows were negative. 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.

The next year is set to see EPS grow by 20.6%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥12.50 in 2014, and the most recent fiscal year payment was ¥120.00. This means that it has been growing its distributions at 25% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Hirata Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Hirata has been growing its earnings per share at 6.6% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Hirata's prospects of growing its dividend payments in the future.

Our Thoughts On Hirata's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Hirata 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Hirata has 3 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.