Sugimoto (TSE:9932) Is Due To Pay A Dividend Of ¥27.00

Sugimoto & Co., Ltd.'s (TSE:9932) investors are due to receive a payment of ¥27.00 per share on 2nd of December. However, the dividend yield of 2.8% still remains in a typical range for the industry.

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Sugimoto's Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last dividend, Sugimoto is earning enough to cover the payment, but then it makes up 105% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

If the trend of the last few years continues, EPS will grow by 2.9% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 55% by next year, which is in a pretty sustainable range.

View our latest analysis for Sugimoto

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 ¥15.00, compared to the most recent full-year payment of ¥54.00. This implies that the company grew its distributions at a yearly rate of about 14% 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Sugimoto has only grown its earnings per share at 2.9% per annum over the past five years. Growth of 2.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Sugimoto is earning enough to cover the payments, the cash flows are lacking. We don't think Sugimoto is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Sugimoto that investors should take into consideration. Is Sugimoto not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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