Rengo's (TSE:3941) Dividend Will Be ¥20.00

Rengo Co., Ltd. (TSE:3941) will pay a dividend of ¥20.00 on the 30th of June. This takes the dividend yield to 3.6%, which shareholders will be pleased with.

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Rengo's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Rengo 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.

The next year is set to see EPS grow by 14.2%. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Rengo

Rengo Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of ¥12.00 in 2015 to the most recent total annual payment of ¥40.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Rengo has seen earnings per share falling at 4.0% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Rengo's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Rengo is earning enough to cover the payments, the cash flows are lacking. We don't think Rengo is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Rengo (of which 1 shouldn't be ignored!) you should know about. Is Rengo 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.