Tenma (TSE:7958) Is Due To Pay A Dividend Of ¥42.00

The board of Tenma Corporation (TSE:7958) has announced that it will pay a dividend of ¥42.00 per share on the 17th of July. The dividend yield will be 2.7% based on this payment which is still above the industry average.

View our latest analysis for Tenma

Tenma's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Tenma's dividend was only 66% of earnings, however it was paying out 391% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

EPS is set to fall by 0.3% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 70%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Tenma Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from ¥30.00 total annually to ¥82.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Tenma May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Tenma hasn't seen much change in its earnings per share over the last five years.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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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