Yuken Kogyo (TSE:6393) Is Paying Out A Larger Dividend Than Last Year

Yuken Kogyo Co., Ltd. (TSE:6393) will increase its dividend from last year's comparable payment on the 30th of June to ¥130.00. This takes the dividend yield to 4.9%, which shareholders will be pleased with.

See our latest analysis for Yuken Kogyo

Yuken Kogyo's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Yuken Kogyo's dividend was only 42% of earnings, however it was paying out 242% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

If the trend of the last few years continues, EPS will grow by 10.7% over the next 12 months. If the dividend continues on this path, the payout ratio could be 48% by next year, which we think can be pretty sustainable going forward.

Yuken Kogyo Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of ¥60.00 in 2015 to the most recent total annual payment of ¥130.00. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Yuken Kogyo has grown earnings per share at 11% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Yuken Kogyo's payments are rock solid. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Yuken Kogyo that investors need to be conscious of moving forward. 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.