Tone's (TSE:5967) Dividend Will Be ¥20.50

The board of Tone Co., Ltd. (TSE:5967) has announced that it will pay a dividend on the 30th of August, with investors receiving ¥20.50 per share. This makes the dividend yield 1.9%, which will augment investor returns quite nicely.

View our latest analysis for Tone

Tone's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Tone was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

EPS is set to fall by 2.6% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 33%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Tone Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was ¥8.00, compared to the most recent full-year payment of ¥20.50. This implies that the company grew its distributions at a yearly rate of about 9.9% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. In the last five years, Tone's earnings per share has shrunk at approximately 2.6% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Tone is earning enough to cover the payments, the cash flows are lacking. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Tone has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. 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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