Shimano Inc.'s (TSE:7309) investors are due to receive a payment of ¥169.50 per share on 30th of March. This takes the dividend yield to 2.1%, which shareholders will be pleased with.
Shimano's Payment Could Potentially Have Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Shimano's dividend was only 56% of earnings, however it was paying out 150% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
The next year is set to see EPS grow by 20.2%. If the dividend continues on this path, the payout ratio could be 61% by next year, which we think can be pretty sustainable going forward.
Check out our latest analysis for Shimano
Shimano Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was ¥58.75, compared to the most recent full-year payment of ¥339.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. However, Shimano's EPS was effectively flat over the past five years, which could stop the company from paying more every year.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Shimano (of which 1 is concerning!) you should know about. Is Shimano not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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