Stock Analysis
The board of Mitsubishi Materials Corporation (TSE:5711) has announced that it will pay a dividend on the 12th of June, with investors receiving ¥50.00 per share. This will take the annual payment to 4.1% of the stock price, which is above what most companies in the industry pay.
See our latest analysis for Mitsubishi Materials
Mitsubishi Materials' Payment Could Potentially Have Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Mitsubishi Materials' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share is forecast to rise by 5.2% over the next year. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥80.00 in 2014, and the most recent fiscal year payment was ¥100.00. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Mitsubishi Materials has been growing its earnings per share at 40% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Mitsubishi Materials will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Mitsubishi Materials is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Mitsubishi Materials (of which 1 doesn't sit too well with us!) 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.
About TSE:5711
Mitsubishi Materials
Engages in metals, metalworking solutions, cement, environment and energy, and electronic materials businesses in Japan.