Yodogawa Steel Works' (TSE:5451) Dividend Will Be Increased To ¥233.00

Yodogawa Steel Works, Ltd. (TSE:5451) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of June to ¥233.00. This will take the dividend yield to an attractive 5.6%, providing a nice boost to shareholder returns.

See our latest analysis for Yodogawa Steel Works

Yodogawa Steel Works' Projections Indicate Future Payments May Be Unsustainable

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Yodogawa Steel Works was paying out quite a large proportion of both earnings and cash flow, with the dividend being 101% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS could expand by 8.6% if the company continues along the path it has been on recently. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 125% over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was ¥50.00, compared to the most recent full-year payment of ¥333.00. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. 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.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Yodogawa Steel Works has grown earnings per share at 8.6% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Yodogawa Steel Works will make a great income stock. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Yodogawa Steel Works that investors should know about before committing capital to this stock. Is Yodogawa Steel Works not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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