Meito Sangyo (TSE:2207) Is Increasing Its Dividend To ¥18.00

Meito Sangyo Co., Ltd. (TSE:2207) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of June to ¥18.00. The payment will take the dividend yield to 1.8%, which is in line with the average for the industry.

View our latest analysis for Meito Sangyo

Meito Sangyo's Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Meito Sangyo was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 33.6% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 16% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥20.00 in 2015, and the most recent fiscal year payment was ¥36.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Meito Sangyo has seen EPS rising for the last five years, at 34% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Meito Sangyo's Dividend

Overall, a dividend increase is always good, and we think that Meito Sangyo is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. For example, we've identified 3 warning signs for Meito Sangyo (1 is a bit concerning!) that you should be aware of before investing. Is Meito Sangyo 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.