Daiki Aluminium Industry's (TSE:5702) Upcoming Dividend Will Be Larger Than Last Year's

Daiki Aluminium Industry Co., Ltd.'s (TSE:5702) dividend will be increasing from last year's payment of the same period to ¥30.00 on 24th of June. This will take the dividend yield to an attractive 5.5%, providing a nice boost to shareholder returns.

View our latest analysis for Daiki Aluminium Industry

Daiki Aluminium Industry's Projections Indicate Future Payments May Be Unsustainable

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Daiki Aluminium Industry was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Looking forward, EPS could fall by 16.5% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 137%, which is definitely a bit high to be sustainable going forward.

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. Since 2015, the annual payment back then was ¥6.00, compared to the most recent full-year payment of ¥55.00. This means that it has been growing its distributions at 25% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

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. Daiki Aluminium Industry's EPS has fallen by approximately 16% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Daiki Aluminium Industry will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Daiki Aluminium Industry you should be aware of, and 2 of them are a bit unpleasant. 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.