Sanki Service (TSE:6044) Is Paying Out Less In Dividends Than Last Year

Sanki Service Corporation (TSE:6044) is reducing its dividend from last year's comparable payment to ¥20.00 on the 28th of August. Despite the cut, the dividend yield of 1.5% will still be comparable to other companies in the industry.

See our latest analysis for Sanki Service

Sanki Service's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, based ont he last payment, Sanki Service was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Unless the company can turn things around, EPS could fall by 3.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 31%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Sanki Service's Dividend Has Lacked Consistency

Looking back, Sanki Service's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 9 years was ¥15.00 in 2015, and the most recent fiscal year payment was ¥20.00. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Sanki Service May Find It Hard To Grow The Dividend

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. It's not great to see that Sanki Service's earnings per share has fallen at approximately 3.2% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Sanki Service is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Sanki Service that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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