Totech (TSE:9960) Has Announced A Dividend Of ¥24.00

Totech Corporation (TSE:9960) will pay a dividend of ¥24.00 on the 2nd of December. This means the dividend yield will be fairly typical at 3.0%.

See our latest analysis for Totech

Totech Doesn't Earn Enough To Cover Its Payments

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Totech's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share could rise by 11.6% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 111%, which probably can't continue without starting to put some pressure on the balance sheet.

Totech Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from ¥6.00 total annually to ¥73.00. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. Totech has impressed us by growing EPS at 12% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Our Thoughts On Totech's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Totech's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 1 warning sign for Totech that investors need to be conscious of moving forward. Is Totech 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.

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