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

Sanko Sangyo Co.,Ltd.'s (TSE:7922) investors are due to receive a payment of ¥10.00 per share on 30th of June. This means the annual payment is 2.5% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Sanko SangyoLtd

Sanko SangyoLtd's Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Sanko SangyoLtd is unprofitable despite paying a dividend, and it is paying out 126% of its free cash flow. This makes us feel that the dividend will be hard to maintain.

Looking forward, earnings per share could rise by 52.6% over the next year if the trend from the last few years continues. The company seems to be going down the right path, but it will probably take a little bit longer than a year to cross over into profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥7.00 in 2014, and the most recent fiscal year payment was ¥10.00. This implies that the company grew its distributions at a yearly rate of about 3.6% over that duration. 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.

The Company Could Face Some Challenges Growing 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 encouraging to see that Sanko SangyoLtd has been growing its earnings per share at 53% a year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

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. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We don't think Sanko SangyoLtd is a great stock to add to your portfolio if income is your focus.

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. Case in point: We've spotted 3 warning signs for Sanko SangyoLtd (of which 1 is significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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