Sumitomo Bakelite's (TSE:4203) Shareholders Will Receive A Bigger Dividend Than Last Year

Sumitomo Bakelite Company Limited (TSE:4203) will increase its dividend from last year's comparable payment on the 25th of June to ¥55.00. Based on this payment, the dividend yield for the company will be 2.2%, which is fairly typical for the industry.

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Sumitomo Bakelite's Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Sumitomo Bakelite's dividend was comfortably covered by both cash flow and 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 16.2% over the next year. If the dividend continues on this path, the payout ratio could be 46% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Sumitomo Bakelite

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥25.00, compared to the most recent full-year payment of ¥110.00. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Sumitomo Bakelite has seen EPS rising for the last five years, at 34% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Sumitomo Bakelite could prove to be a strong dividend payer.

Sumitomo Bakelite Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Sumitomo Bakelite is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Sumitomo Bakelite 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.