JAPAN MATERIAL (TSE:6055) Will Pay A Larger Dividend Than Last Year At ¥22.00

JAPAN MATERIAL Co., Ltd. (TSE:6055) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of June to ¥22.00. This will take the dividend yield to an attractive 1.4%, providing a nice boost to shareholder returns.

Check out our latest analysis for JAPAN MATERIAL

JAPAN MATERIAL's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, JAPAN MATERIAL's dividend was only 34% of earnings, however it was paying out 646% of free cash flows. 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.

The next year is set to see EPS grow by 20.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which is in the range that makes us comfortable with the sustainability of the dividend.

JAPAN MATERIAL Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥2.53 in 2014, and the most recent fiscal year payment was ¥22.00. This means that it has been growing its distributions at 24% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. However, JAPAN MATERIAL has only grown its earnings per share at 4.6% per annum over the past five years. While EPS growth is quite low, JAPAN MATERIAL has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think JAPAN MATERIAL is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 1 warning sign for JAPAN MATERIAL that investors should know about before committing capital to this stock. 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.