Sumitomo Forestry (TSE:1911) Is Increasing Its Dividend To ¥91.00

Sumitomo Forestry Co., Ltd. (TSE:1911) will increase its dividend from last year's comparable payment on the 9th of September to ¥91.00. This will take the annual payment to 4.5% of the stock price, which is above what most companies in the industry pay.

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Sumitomo Forestry's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Sumitomo Forestry's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 11.1%. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Sumitomo Forestry

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 ¥19.00 in 2015 to the most recent total annual payment of ¥182.00. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Sumitomo Forestry has seen EPS rising for the last five years, at 30% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

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 probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Sumitomo Forestry you should be aware of, and 1 of them is a bit concerning. 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.