Rion (TSE:6823) Is Increasing Its Dividend To ¥32.00

The board of Rion Co., Ltd. (TSE:6823) has announced that the dividend on 26th of June will be increased to ¥32.00, which will be 45% higher than last year's payment of ¥22.00 which covered the same period. This makes the dividend yield 1.5%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Rion's stock price has increased by 32% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Rion

Rion's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Rion is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 9.1% over the next year. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was ¥22.00, compared to the most recent full-year payment of ¥45.00. This implies that the company grew its distributions at a yearly rate of about 7.4% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Rion Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Rion has been growing its earnings per share at 5.6% a year over the past five years. Rion definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Rion's Dividend

Overall, we always like to see the dividend being raised, but we don't think Rion will make a great income stock. While Rion 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.

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. Now, if you want to look closer, it would be worth checking out our free research on Rion management tenure, salary, and performance. Is Rion 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.