SMS (TSE:2175) Has Announced That It Will Be Increasing Its Dividend To ¥28.50

The board of SMS Co., Ltd. (TSE:2175) has announced that it will be paying its dividend of ¥28.50 on the 24th of June, an increased payment from last year's comparable dividend. This will take the annual payment to 2.5% of the stock price, which is above what most companies in the industry pay.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. SMS' stock price has reduced by 31% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

View our latest analysis for SMS

SMS' Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, SMS' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 14.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

SMS Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was ¥2.50, compared to the most recent full-year payment of ¥28.50. This means that it has been growing its distributions at 28% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

We Could See SMS' Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that SMS has been growing its earnings per share at 9.6% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for SMS' prospects of growing its dividend payments in the future.

We Really Like SMS' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for SMS that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.