Sumitomo's (TSE:8053) Dividend Will Be ¥65.00

Sumitomo Corporation (TSE:8053) will pay a dividend of ¥65.00 on the 24th of June. This will take the annual payment to 3.9% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Sumitomo

Sumitomo's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Sumitomo was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 9.4%. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥50.00 in 2015, and the most recent fiscal year payment was ¥130.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

We Could See Sumitomo's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Sumitomo has impressed us by growing EPS at 7.2% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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. Case in point: We've spotted 2 warning signs for Sumitomo (of which 1 is significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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