Komatsu's (TSE:6301) Dividend Will Be ¥95.00

Komatsu Ltd. (TSE:6301) has announced that it will pay a dividend of ¥95.00 per share on the 2nd of December. This will take the dividend yield to an attractive 3.6%, providing a nice boost to shareholder returns.

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Komatsu's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Komatsu's earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 5.1% over the next year. 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 Komatsu

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. Since 2015, the annual payment back then was ¥58.00, compared to the most recent full-year payment of ¥190.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% 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 Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Komatsu has impressed us by growing EPS at 29% per year over the past five years. Komatsu is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like Komatsu's Dividend

Overall, a dividend increase is always good, and we think that Komatsu is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Komatsu that investors should know about before committing capital to this stock. Is Komatsu 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.