Rinnai's (TSE:5947) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Rinnai Corporation (TSE:5947) has announced that it will be paying its dividend of ¥40.00 on the 9th of December, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 2.3%, providing a nice boost to shareholder returns.

Check out our latest analysis for Rinnai

Rinnai'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. Before making this announcement, Rinnai was paying a whopping 190% as a dividend, but this only made up 29% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 6.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 works out to be a compound annual growth rate (CAGR) of approximately 14% a year 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 Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Rinnai has impressed us by growing EPS at 11% 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.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Rinnai's payments are rock solid. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Rinnai that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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