Yotai Refractories' (TSE:5357) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Yotai Refractories Co., Ltd. (TSE:5357) has announced that the dividend on 24th of June will be increased to ¥28.00, which will be 12% higher than last year's payment of ¥25.00 which covered the same period. This will take the annual payment to 3.4% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Yotai Refractories

Yotai Refractories' Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Yotai Refractories was paying a whopping 171% as a dividend, but this only made up 39% 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.

EPS is set to fall by 4.9% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 35%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was ¥10.00, compared to the most recent full-year payment of ¥50.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Yotai Refractories 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's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 3.4% a year for the past five years, which isn't massive but still better than seeing them shrink. If Yotai Refractories is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On Yotai Refractories' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Yotai Refractories' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Yotai Refractories has 3 warning signs (and 1 which is potentially serious) we think you should know about. 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.