Suzumo Machinery (TSE:6405) Will Pay A Dividend Of ¥16.00

Suzumo Machinery Company Limited (TSE:6405) will pay a dividend of ¥16.00 on the 26th of June. The dividend yield will be 2.9% based on this payment which is still above the industry average.

View our latest analysis for Suzumo Machinery

Suzumo Machinery's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Suzumo Machinery was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

If the trend of the last few years continues, EPS will grow by 13.5% over the next 12 months. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

Suzumo Machinery Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥6.25 in 2014, and the most recent fiscal year payment was ¥31.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Suzumo Machinery has grown earnings per share at 13% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

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. For example, we've picked out 2 warning signs for Suzumo Machinery that investors should know about before committing capital to this stock. Is Suzumo Machinery not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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