Mabuchi Motor (TSE:6592) Will Pay A Dividend Of ¥39.00

The board of Mabuchi Motor Co., Ltd. (TSE:6592) has announced that it will pay a dividend on the 31st of March, with investors receiving ¥39.00 per share. This will take the dividend yield to an attractive 3.1%, providing a nice boost to shareholder returns.

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Mabuchi Motor's Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 104% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 36%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share is forecast to rise by 16.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 101%, which probably can't continue without putting some pressure on the balance sheet.

View our latest analysis for Mabuchi Motor

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ¥41.50 in 2015 to the most recent total annual payment of ¥78.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.5% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Mabuchi Motor May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings has been rising at 3.1% per annum over the last five years, which admittedly is a bit slow. So the company has struggled to grow its EPS yet it's still paying out 104% of its earnings. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Mabuchi Motor's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for Mabuchi Motor that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.