Heiwa (TSE:6412) Will Pay A Dividend Of ¥40.00

The board of Heiwa Corporation (TSE:6412) has announced that it will pay a dividend of ¥40.00 per share on the 9th of December. Based on this payment, the dividend yield on the company's stock will be 3.8%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Heiwa

Heiwa's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Heiwa was earning enough to cover the dividend, but it wasn't generating any free 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 4.3% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

Heiwa Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥60.00 in 2014, and the most recent fiscal year payment was ¥80.00. This implies that the company grew its distributions at a yearly rate of about 2.9% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 4.3% per year. The company has been growing at a pretty soft 4.3% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Heiwa is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Heiwa that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.