MEC (TSE:4971) Has Announced A Dividend Of ¥20.00

The board of MEC Company Ltd. (TSE:4971) has announced that it will pay a dividend on the 5th of September, with investors receiving ¥20.00 per share. This means the annual payment will be 1.2% of the current stock price, which is lower than the industry average.

View our latest analysis for MEC

MEC's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, MEC was paying a whopping 1,404% as a dividend, but this only made up 37% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 69.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 24% 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. The dividend has gone from an annual total of ¥10.00 in 2014 to the most recent total annual payment of ¥45.00. This means that it has been growing its distributions at 16% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

MEC Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. MEC has seen EPS rising for the last five years, at 5.8% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for MEC's prospects of growing its dividend payments in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about MEC's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for MEC that you should be aware of before investing. Is MEC not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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