SPK's (TSE:7466) Upcoming Dividend Will Be Larger Than Last Year's

The board of SPK Corporation (TSE:7466) has announced that it will be increasing its dividend by 13% on the 31st of May to ¥27.00, up from last year's comparable payment of ¥24.00. The payment will take the dividend yield to 2.3%, which is in line with the average for the industry.

See our latest analysis for SPK

SPK's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, SPK was paying a whopping 3,933% as a dividend, but this only made up 19% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to expand by 2.9%. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

SPK Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥28.50 in 2014, and the most recent fiscal year payment was ¥47.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.1% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

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 SPK has been growing its earnings per share at 12% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for SPK's prospects of growing its dividend payments in the future.

Our Thoughts On SPK's Dividend

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 would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for SPK that you should be aware of before investing. Is SPK 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.