Zenrin (TSE:9474) Is Increasing Its Dividend To ¥21.00

Zenrin Co., Ltd.'s (TSE:9474) dividend will be increasing from last year's payment of the same period to ¥21.00 on 3rd of December. This makes the dividend yield 3.8%, which is above the industry average.

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Zenrin's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Zenrin's dividend made up quite a large proportion of earnings but only 47% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Earnings per share is forecast to rise by 15.3% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 79% which is a bit high but can definitely be sustainable.

Check out our latest analysis for Zenrin

Zenrin Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was ¥20.00 in 2015, and the most recent fiscal year payment was ¥42.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.7% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Zenrin 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. Let's not jump to conclusions as things might not be as good as they appear on the surface. Zenrin hasn't seen much change in its earnings per share over the last five years.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Zenrin will make a great income stock. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Given that earnings are not growing, the dividend does not look nearly so attractive. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 5 analysts we track are forecasting for the future. Is Zenrin not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.