Sanyu's (TSE:5697) Upcoming Dividend Will Be Larger Than Last Year's

Sanyu Co., Ltd. (TSE:5697) will increase its dividend from last year's comparable payment on the 30th of June to ¥20.00. Based on this payment, the dividend yield for the company will be 3.6%, which is fairly typical for the industry.

Check out our latest analysis for Sanyu

Sanyu's Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Sanyu was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 1.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 ¥5.00 in 2015 to the most recent total annual payment of ¥18.00. This means that it has been growing its distributions at 14% per annum over that time. Sanyu 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

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. Unfortunately, Sanyu's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While EPS growth is quite low, Sanyu has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Sanyu's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Sanyu that investors need to be conscious of moving forward. 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.