Daiki Aluminium Industry (TSE:5702) Has Announced That Its Dividend Will Be Reduced To ¥20.00

Daiki Aluminium Industry Co., Ltd.'s (TSE:5702) dividend is being reduced from last year's payment covering the same period to ¥20.00 on the 26th of June. The dividend yield will be in the average range for the industry at 3.4%.

View our latest analysis for Daiki Aluminium Industry

Daiki Aluminium Industry's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Daiki Aluminium Industry's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to fall by 1.0% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 60%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 ¥6.00 in 2014 to the most recent total annual payment of ¥40.00. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Daiki Aluminium Industry May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Daiki Aluminium Industry's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Daiki Aluminium Industry's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Daiki Aluminium Industry is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Daiki Aluminium Industry (of which 1 can't be ignored!) you should know about. Is Daiki Aluminium Industry not quite the opportunity you were looking for? Why not check out our selection of top 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.