Sansha Electric ManufacturingLtd (TSE:6882) Is Paying Out A Dividend Of ¥30.00

The board of Sansha Electric Manufacturing Co.,Ltd. (TSE:6882) has announced that it will pay a dividend of ¥30.00 per share on the 5th of June. The dividend yield will be 4.5% based on this payment which is still above the industry average.

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Sansha Electric ManufacturingLtd's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Sansha Electric ManufacturingLtd was paying out 153% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Earnings per share is forecast to rise by 77.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 95%, which is on the higher side, but certainly still feasible.

Check out our latest analysis for Sansha Electric ManufacturingLtd

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from ¥23.00 total annually to ¥40.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.7% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Sansha Electric ManufacturingLtd Might Find It Hard To Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Sansha Electric ManufacturingLtd has impressed us by growing EPS at 24% per year over the past five years. While EPS is growing rapidly, Sansha Electric ManufacturingLtd paid out a very high 153% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Sansha Electric ManufacturingLtd's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Sansha Electric ManufacturingLtd has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

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. To that end, Sansha Electric ManufacturingLtd has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. 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.