Socionext (TSE:6526) Is Due To Pay A Dividend Of ¥25.00

Socionext Inc. (TSE:6526) will pay a dividend of ¥25.00 on the 5th of June. This means the annual payment is 2.2% of the current stock price, which is above the average for the industry.

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Socionext's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Socionext was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Looking forward, earnings per share is forecast to rise by 31.0% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 66% which brings it into quite a comfortable range.

See our latest analysis for Socionext

Socionext Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2022, the annual payment back then was ¥42.00, compared to the most recent full-year payment of ¥50.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.0% a year over that time. Socionext has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

Dividend Growth Could Be Constrained

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Socionext has grown earnings per share at 92% per year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

Socionext's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Socionext has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Socionext 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Socionext (of which 2 are a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.