YASKAWA Electric (TSE:6506) Is Increasing Its Dividend To ¥34.00

YASKAWA Electric Corporation (TSE:6506) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of November to ¥34.00. Despite this raise, the dividend yield of 1.1% is only a modest boost to shareholder returns.

View our latest analysis for YASKAWA Electric

YASKAWA Electric's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. YASKAWA Electric was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 75% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 35.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ¥12.00 in 2014 to the most recent total annual payment of ¥68.00. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 4.5% per annum over the last five years, which admittedly is a bit slow. Growth of 4.5% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think YASKAWA Electric's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 18 YASKAWA Electric analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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