Rion's (TSE:6823) Shareholders Will Receive A Bigger Dividend Than Last Year

Rion Co., Ltd. (TSE:6823) will increase its dividend from last year's comparable payment on the 26th of June to ¥42.00. This will take the dividend yield to an attractive 2.0%, providing a nice boost to shareholder returns.

See our latest analysis for Rion

Rion's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. But before making this announcement, Rion's earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 86% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

The next year is set to see EPS grow by 16.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% 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 ¥22.00 in 2015, and the most recent fiscal year payment was ¥55.00. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See Rion's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Rion has seen EPS rising for the last five years, at 7.2% per annum. 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. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think Rion is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Rion that investors need to be conscious of moving forward. 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.