S.IshimitsuLtd's (TSE:2750) Dividend Will Be Increased To ¥38.00

The board of S.Ishimitsu & Co.,Ltd. (TSE:2750) has announced that it will be paying its dividend of ¥38.00 on the 4th of June, an increased payment from last year's comparable dividend. This will take the annual payment to 2.9% of the stock price, which is above what most companies in the industry pay.

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S.IshimitsuLtd's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. S.IshimitsuLtd is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. 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 44.5% over the next 12 months. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for S.IshimitsuLtd

S.IshimitsuLtd Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was ¥10.00, compared to the most recent full-year payment of ¥38.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. S.IshimitsuLtd has seen EPS rising for the last five years, at 44% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

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 4 warning signs for S.IshimitsuLtd (of which 2 are potentially serious!) you should know about. Is S.IshimitsuLtd 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.