SMC (TSE:6273) Will Pay A Dividend Of ¥500.00

The board of SMC Corporation (TSE:6273) has announced that it will pay a dividend of ¥500.00 per share on the 30th of June. This means the dividend yield will be fairly typical at 1.8%.

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SMC's Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite comfortably covered by SMC's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 87% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 5.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 46%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for SMC

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥180.00 in 2015, and the most recent fiscal year payment was ¥1000.00. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. SMC has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See SMC's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. SMC has impressed us by growing EPS at 9.9% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On SMC's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about SMC's payments, as there could be some issues with sustaining them into the future. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 1 warning sign for SMC that investors should know about before committing capital to this stock. 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.