Satoh (TSE:9996) Is Paying Out A Larger Dividend Than Last Year

Satoh & Co., Ltd.'s (TSE:9996) dividend will be increasing from last year's payment of the same period to ¥23.00 on 27th of June. This takes the dividend yield to 2.3%, which shareholders will be pleased with.

See our latest analysis for Satoh

Satoh's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Satoh is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 4.2% over the next 12 months. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

Satoh Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was ¥24.00, compared to the most recent full-year payment of ¥44.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 4.2% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, Satoh could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Satoh's Dividend

Overall, we always like to see the dividend being raised, but we don't think Satoh will make a great income stock. While Satoh is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Satoh that you should be aware of before investing. 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.