Sanko Gosei (TSE:7888) Will Pay A Dividend Of ¥10.00

Sanko Gosei Ltd. (TSE:7888) has announced that it will pay a dividend of ¥10.00 per share on the 3rd of February. Based on this payment, the dividend yield on the company's stock will be 3.4%, which is an attractive boost to shareholder returns.

See our latest analysis for Sanko Gosei

Sanko Gosei's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, based ont he last payment, Sanko Gosei was earning enough to cover the dividend pretty comfortably. The business is earning enough to make the dividend feasible, but the cash payout ratio of 78% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Looking forward, earnings per share is forecast to rise by 13.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 18% 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. Since 2014, the annual payment back then was ¥6.00, compared to the most recent full-year payment of ¥20.00. This implies that the company grew its distributions at a yearly rate of about 13% 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.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Sanko Gosei has grown earnings per share at 26% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Sanko Gosei is a great stock to add to your portfolio if income is your focus.

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 picked out 1 warning sign for Sanko Gosei that investors should know about before committing capital to this stock. 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.