Matsuoka's (TSE:3611) Upcoming Dividend Will Be Larger Than Last Year's

Matsuoka Corporation (TSE:3611) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of June to ¥90.00. This takes the dividend yield to 3.2%, which shareholders will be pleased with.

View our latest analysis for Matsuoka

Matsuoka's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Matsuoka was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 0.9% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 36%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Matsuoka Is Still Building Its Track Record

It is great to see that Matsuoka has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 7 years was ¥40.00 in 2017, and the most recent fiscal year payment was ¥60.00. This means that it has been growing its distributions at 6.0% per annum over that time. Matsuoka has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

Matsuoka May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Unfortunately, Matsuoka's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Matsuoka's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. We don't think Matsuoka is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Matsuoka that investors need to be conscious of moving forward. 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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