Rinnai (TSE:5947) Is Increasing Its Dividend To ¥40.00

Rinnai Corporation (TSE:5947) has announced that it will be increasing its dividend from last year's comparable payment on the 9th of December to ¥40.00. This takes the dividend yield to 2.2%, which shareholders will be pleased with.

See our latest analysis for Rinnai

Rinnai's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Rinnai was paying a whopping 190% as a dividend, but this only made up 19% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 8.5%. If the dividend continues on this path, the payout ratio could be 37% by next year, which we think can be pretty sustainable going forward.

Rinnai Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was ¥21.33 in 2014, and the most recent fiscal year payment was ¥80.00. This means that it has been growing its distributions at 14% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

We Could See Rinnai's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Rinnai has grown earnings per share at 7.2% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Rinnai's prospects of growing its dividend payments in the future.

Our Thoughts On Rinnai's Dividend

Overall, we always like to see the dividend being raised, but we don't think Rinnai will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Rinnai is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Rinnai that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.

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