Tone (TSE:5967) Is Due To Pay A Dividend Of ¥20.50

The board of Tone Co., Ltd. (TSE:5967) has announced that it will pay a dividend of ¥20.50 per share on the 8th of August. The dividend yield will be 2.1% based on this payment which is still above the industry average.

See our latest analysis for Tone

Tone's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Tone 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.

If the trend of the last few years continues, EPS will grow by 2.2% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 21% by next year, which is in a pretty sustainable range.

Tone Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ¥11.00 in 2015, and the most recent fiscal year payment was ¥20.50. This means that it has been growing its distributions at 6.4% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Tone May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 2.2% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Tone has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Tone's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Tone's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Tone that you should be aware of before investing. Is Tone 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.