Seiko Group (TSE:8050) Has Announced That It Will Be Increasing Its Dividend To ¥45.00

Seiko Group Corporation (TSE:8050) will increase its dividend from last year's comparable payment on the 5th of December to ¥45.00. The payment will take the dividend yield to 2.0%, which is in line with the average for the industry.

See our latest analysis for Seiko Group

Seiko Group's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by Seiko Group's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 10.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ¥25.00 in 2014 to the most recent total annual payment of ¥90.00. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Seiko Group's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 2 warning signs for Seiko Group that investors should take into consideration. Is Seiko Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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