Sanko SangyoLtd (TSE:7922) Has Announced A Dividend Of ¥10.00

Sanko Sangyo Co.,Ltd. (TSE:7922) will pay a dividend of ¥10.00 on the 30th of June. The dividend yield will be 2.7% based on this payment which is still above the industry average.

View our latest analysis for Sanko SangyoLtd

Estimates Indicate Sanko SangyoLtd's Could Struggle to Maintain Dividend Payments In The Future

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Sanko SangyoLtd's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS could expand by 57.5% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 618%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥7.00 in 2014, and the most recent fiscal year payment was ¥10.00. This means that it has been growing its distributions at 3.6% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Sanko SangyoLtd Might Find It Hard To Grow Its 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. We are encouraged to see that Sanko SangyoLtd has grown earnings per share at 57% per year over the past five years. EPS has been growing well, but Sanko SangyoLtd has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

An additional note is that the company has been raising capital by issuing stock equal to 24% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Sanko SangyoLtd's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 4 warning signs for Sanko SangyoLtd 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.