EM Systems' (TSE:4820) Dividend Will Be ¥17.00

The board of EM Systems Co., Ltd. (TSE:4820) has announced that it will pay a dividend on the 4th of September, with investors receiving ¥17.00 per share. This takes the dividend yield to 4.6%, which shareholders will be pleased with.

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EM Systems' Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 82% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Earnings per share is forecast to rise by 6.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 107%, which probably can't continue without putting some pressure on the balance sheet.

See our latest analysis for EM Systems

EM Systems Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from ¥5.63 total annually to ¥35.00. This works out to be a compound annual growth rate (CAGR) of approximately 20% 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.

EM Systems' Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that EM Systems has grown earnings per share at 17% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On EM Systems' Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payments look pretty sustainable with good earnings coverage and a reasonable track record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for EM Systems that investors should take into consideration. 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.