Tenma (TSE:7958) Has Affirmed Its Dividend Of ¥40.00

Tenma Corporation's (TSE:7958) investors are due to receive a payment of ¥40.00 per share on 9th of December. The dividend yield will be 2.9% based on this payment which is still above the industry average.

See our latest analysis for Tenma

Tenma's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. At the time of the last dividend payment, Tenma was paying out a very large proportion of what it was earning and 445% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

If the trend of the last few years continues, EPS will grow by 10.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Tenma Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥30.00 in 2014, and the most recent fiscal year payment was ¥82.00. This means that it has been growing its distributions at 11% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Tenma has been growing its earnings per share at 10% a year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Tenma's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Tenma that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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