Shinwa's (TSE:7607) Dividend Will Be ¥56.00

The board of Shinwa Co., Ltd. (TSE:7607) has announced that it will pay a dividend of ¥56.00 per share on the 25th of November. This takes the dividend yield to 3.8%, which shareholders will be pleased with.

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Shinwa's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite easily covered by Shinwa's earnings. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 1.0% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 53%, which we are pretty comfortable with and we think is feasible on an earnings basis.

See our latest analysis for Shinwa

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥40.00 in 2015, and the most recent fiscal year payment was ¥112.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. 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.

Dividend Growth May Be Hard To Achieve

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. Unfortunately, Shinwa's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Shinwa's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Shinwa'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. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Shinwa (1 doesn't sit too well with us!) that you should be aware of before investing. 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.