Shinwa (TSE:7607) Is Increasing Its Dividend To ¥56.00

Shinwa Co., Ltd. (TSE:7607) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of May to ¥56.00. This will take the dividend yield to an attractive 3.9%, providing a nice boost to shareholder returns.

See our latest analysis for Shinwa

Shinwa's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Shinwa's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Unless the company can turn things around, EPS could fall by 3.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 60%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥40.00 in 2014, and the most recent fiscal year payment was ¥112.00. This means that it has been growing its distributions at 11% per annum over that time. Shinwa has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Shinwa 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. It's not great to see that Shinwa's earnings per share has fallen at approximately 3.9% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Our Thoughts On Shinwa's Dividend

Overall, we always like to see the dividend being raised, but we don't think Shinwa will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Shinwa is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Shinwa you should be aware of, and 1 of them makes us a bit uncomfortable. 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.