Kawasaki Heavy Industries (TSE:7012) Is Increasing Its Dividend To ¥70.00

Kawasaki Heavy Industries, Ltd.'s (TSE:7012) dividend will be increasing from last year's payment of the same period to ¥70.00 on 4th of December. This will take the annual payment to 2.6% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Kawasaki Heavy Industries

Kawasaki Heavy Industries' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Kawasaki Heavy Industries' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 23.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 50% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥70.00 in 2014, and the most recent fiscal year payment was ¥140.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Kawasaki Heavy Industries might have put its house in order since then, but we remain cautious.

Kawasaki Heavy Industries May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Kawasaki Heavy Industries' EPS was effectively flat over the past five years, which could stop the company from paying more every year.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Kawasaki Heavy Industries is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

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. Just as an example, we've come across 4 warning signs for Kawasaki Heavy Industries you should be aware of, and 2 of them are potentially serious. 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.

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