Sumitomo Bakelite (TSE:4203) Has Announced That It Will Be Increasing Its Dividend To ¥80.00

The board of Sumitomo Bakelite Company Limited (TSE:4203) has announced that it will be increasing its dividend by 14% on the 24th of June to ¥80.00, up from last year's comparable payment of ¥70.00. This takes the annual payment to 1.6% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Sumitomo Bakelite

Sumitomo Bakelite's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Sumitomo Bakelite was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 20.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.

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 2014, the annual payment back then was ¥50.00, compared to the most recent full-year payment of ¥140.00. This means that it has been growing its distributions at 11% per annum over that time. Sumitomo Bakelite has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Sumitomo Bakelite has impressed us by growing EPS at 7.9% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Sumitomo Bakelite's prospects of growing its dividend payments in the future.

Our Thoughts On Sumitomo Bakelite's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 5 analysts we track are forecasting for Sumitomo Bakelite for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield 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.