SMC Corporation's (TSE:6273) investors are due to receive a payment of ¥500.00 per share on 2nd of December. This makes the dividend yield about the same as the industry average at 1.7%.
See our latest analysis for SMC
SMC's Projected Earnings Seem Likely To Cover Future Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. SMC is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
The next year is set to see EPS grow by 8.2%. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥160.00 in 2014, and the most recent fiscal year payment was ¥1000.00. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Has Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. SMC has seen EPS rising for the last five years, at 9.6% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for SMC's prospects of growing its dividend payments in the future.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think SMC's payments are rock solid. While SMC 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.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 14 analysts we track are forecasting for SMC for free with public analyst estimates for the company. Is SMC not quite the opportunity you were looking for? Why not check out our selection of top 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.
About TSE:6273
SMC
Manufactures, processes, and sells automatic control equipment, sintered filters, and various types of filtration equipment worldwide.
Flawless balance sheet and slightly overvalued.
