Mitsubishi Materials (TSE:5711) Is Paying Out A Larger Dividend Than Last Year

Mitsubishi Materials Corporation (TSE:5711) has announced that it will be increasing its dividend from last year's comparable payment on the 9th of December to ¥50.00. Based on this payment, the dividend yield for the company will be 3.3%, which is fairly typical for the industry.

See our latest analysis for Mitsubishi Materials

Mitsubishi Materials' Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Mitsubishi Materials was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 10.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 38% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was ¥40.00, compared to the most recent full-year payment of ¥100.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

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. Mitsubishi Materials has seen EPS rising for the last five years, at 87% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Mitsubishi Materials could prove to be a strong dividend payer.

Our Thoughts On Mitsubishi Materials' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Mitsubishi Materials' payments are rock solid. While Mitsubishi Materials is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Mitsubishi Materials you should be aware of, and 1 of them shouldn't be ignored. 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.

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