Rheon Automatic Machinery's (TSE:6272) Dividend Will Be Increased To ¥24.00

Rheon Automatic Machinery Co., Ltd. (TSE:6272) will increase its dividend from last year's comparable payment on the 9th of December to ¥24.00. This makes the dividend yield 3.4%, which is above the industry average.

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Rheon Automatic Machinery's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Rheon Automatic Machinery's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 7.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% by next year, which is in a pretty sustainable range.

View our latest analysis for Rheon Automatic Machinery

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 ¥8.00 in 2015, and the most recent fiscal year payment was ¥48.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Rheon Automatic Machinery has been growing its earnings per share at 21% 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.

We Really Like Rheon Automatic Machinery's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Rheon Automatic Machinery that investors need to be conscious of moving forward. 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.