The board of Rinnai Corporation (TSE:5947) has announced that it will pay a dividend on the 1st of July, with investors receiving ¥30.00 per share. However, the dividend yield of 1.7% still remains in a typical range for the industry.
Check out our latest analysis for Rinnai
Rinnai's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Rinnai was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to expand by 55.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 27%, which is in the range that makes us comfortable with the sustainability of the dividend.
Rinnai Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was ¥21.33, compared to the most recent full-year payment of ¥60.00. This means that it has been growing its distributions at 11% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings have grown at around 4.0% a year for the past five years, which isn't massive but still better than seeing them shrink. While growth may be thin on the ground, Rinnai could always pay out a higher proportion of earnings to increase shareholder returns.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
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. As an example, we've identified 1 warning sign for Rinnai that you should be aware of before investing. Is Rinnai 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.
About TSE:5947
Rinnai
Develops, manufactures, and sells heating products in Japan, the United States, Australia, China, South Korea, and Indonesia.
Flawless balance sheet with solid track record and pays a dividend.
