Shinwa Co., Ltd. (TSE:7607) will increase its dividend from last year's comparable payment on the 7th of May to ¥56.00. This makes the dividend yield 3.9%, which is above the industry average.
Check out our latest analysis for Shinwa
Shinwa's Payment Could Potentially Have Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Shinwa was quite comfortably earning enough to cover the dividend. 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. If the dividend continues along recent trends, we estimate the payout ratio could be 60%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥40.00, compared to the most recent full-year payment of ¥112.00. This means that it has been growing its distributions at 11% per annum 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.
Shinwa May Find It Hard To Grow The 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. Shinwa has seen earnings per share falling at 3.9% per year over the last 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, this is probably not a great income stock, even though the dividend is being raised at the moment. 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 would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 2 warning signs for Shinwa you should be aware of, and 1 of them shouldn't be ignored. Is Shinwa not quite the opportunity you were looking for? Why not check out our selection of top 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.
About TSE:7607
Shinwa
Operates as an engineering, manufacturing, and trading and logistics in Japan and internationally.
Flawless balance sheet established dividend payer.
