Kawai Musical Instruments Manufacturing (TSE:7952) Has Affirmed Its Dividend Of ¥95.00

Kawai Musical Instruments Manufacturing Co., Ltd. (TSE:7952) has announced that it will pay a dividend of ¥95.00 per share on the 30th of June. This makes the dividend yield 3.0%, which will augment investor returns quite nicely.

View our latest analysis for Kawai Musical Instruments Manufacturing

Estimates Indicate Kawai Musical Instruments Manufacturing's Could Struggle to Maintain Dividend Payments In The Future

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the dividend made up 165% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

If the company can't turn things around, EPS could fall by 27.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 245%, which could put the dividend under pressure if earnings don't start to improve.

Kawai Musical Instruments Manufacturing Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from ¥45.00 total annually to ¥95.00. This implies that the company grew its distributions at a yearly rate of about 7.8% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Kawai Musical Instruments Manufacturing's EPS has declined at around 27% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Kawai Musical Instruments Manufacturing you should be aware of, and 1 of them is potentially serious. 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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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.