Sakai Heavy Industries (TSE:6358) Will Pay A Smaller Dividend Than Last Year

Sakai Heavy Industries, Ltd. (TSE:6358) is reducing its dividend from last year's comparable payment to ¥45.00 on the 10th of December. The dividend yield of 5.0% is still a nice boost to shareholder returns, despite the cut.

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Sakai Heavy Industries' Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Sakai Heavy Industries was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 5.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 69%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Sakai Heavy Industries

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥25.00, compared to the most recent full-year payment of ¥105.00. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Sakai Heavy Industries 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.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Sakai Heavy Industries has impressed us by growing EPS at 25% per year over the past five years. Sakai Heavy Industries is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Sakai Heavy Industries' Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Sakai Heavy Industries that you should be aware of before investing. Is Sakai Heavy Industries 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.