SPK (TSE:7466) Is Increasing Its Dividend To ¥32.00

SPK Corporation (TSE:7466) will increase its dividend from last year's comparable payment on the 2nd of June to ¥32.00. This will take the dividend yield to an attractive 3.1%, providing a nice boost to shareholder returns.

View our latest analysis for SPK

SPK'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, SPK's dividend was only 24% of earnings, however it was paying out 112% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 5.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.

SPK Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from ¥28.00 total annually to ¥64.00. This means that it has been growing its distributions at 8.6% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

We Could See SPK's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. SPK has seen EPS rising for the last five years, at 5.0% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, we always like to see the dividend being raised, but we don't think SPK will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think SPK is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 1 warning sign for SPK 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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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.