Kokuyo's (TSE:7984) Dividend Will Be Increased To ¥45.50

Kokuyo Co., Ltd. (TSE:7984) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of September to ¥45.50. This takes the dividend yield to 3.4%, which shareholders will be pleased with.

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Kokuyo's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Kokuyo was paying only paying out a fraction of earnings, but the payment was a massive 119% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 5.7%. If the dividend continues on this path, the payout ratio could be 48% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Kokuyo

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ¥15.00 in 2015 to the most recent total annual payment of ¥91.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Kokuyo Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Kokuyo has been growing its earnings per share at 8.2% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Kokuyo's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Kokuyo that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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