Sumitomo Metal Mining (TSE:5713) Has Announced A Dividend Of ¥49.00

The board of Sumitomo Metal Mining Co., Ltd. (TSE:5713) has announced that it will pay a dividend of ¥49.00 per share on the 9th of December. Even though the dividend went up, the yield is still quite low at only 1.9%.

Check out our latest analysis for Sumitomo Metal Mining

Sumitomo Metal Mining's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last dividend was quite easily covered by Sumitomo Metal Mining's earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 14.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, 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 annual payment during the last 10 years was ¥68.00 in 2014, and the most recent fiscal year payment was ¥99.00. This implies that the company grew its distributions at a yearly rate of about 3.8% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Sumitomo Metal Mining May Find It Hard To Grow The Dividend

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. In the last five years, Sumitomo Metal Mining's earnings per share has shrunk at approximately 2.6% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Sumitomo Metal Mining's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Sumitomo Metal Mining's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

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. As an example, we've identified 2 warning signs for Sumitomo Metal Mining that you should be aware of before investing. 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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