TOKAI's (TSE:9729) Shareholders Will Receive A Bigger Dividend Than Last Year

TOKAI Corp. (TSE:9729) has announced that it will be increasing its periodic dividend on the 9th of December to ¥34.00, which will be 17% higher than last year's comparable payment amount of ¥29.00. This will take the annual payment to 2.7% of the stock price, which is above what most companies in the industry pay.

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TOKAI's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by TOKAI's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 11.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for TOKAI

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from ¥16.00 total annually to ¥58.00. This means that it has been growing its distributions at 14% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Although it's important to note that TOKAI's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Our Thoughts On TOKAI's Dividend

In summary, while it's always good to see the dividend being raised, we don't think TOKAI's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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 instance, we've picked out 3 warning signs for TOKAI that investors should take into consideration. Is TOKAI 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.