Sumitomo Forestry (TSE:1911) Is Increasing Its Dividend To ¥80.00

Sumitomo Forestry Co., Ltd.'s (TSE:1911) dividend will be increasing from last year's payment of the same period to ¥80.00 on 31st of March. This will take the dividend yield to an attractive 3.1%, providing a nice boost to shareholder returns.

See our latest analysis for Sumitomo Forestry

Sumitomo Forestry's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Sumitomo Forestry is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 6.0% over the next year. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥19.00 in 2014, and the most recent fiscal year payment was ¥160.00. This implies that the company grew its distributions at a yearly rate of about 24% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

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. Sumitomo Forestry has impressed us by growing EPS at 29% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Sumitomo Forestry's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Sumitomo Forestry is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 3 warning signs for Sumitomo Forestry (of which 1 can't be ignored!) you should know about. Is Sumitomo Forestry not quite the opportunity you were looking for? Why not check out our selection of top 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.