Shibaura Mechatronics (TSE:6590) Has Announced That It Will Be Increasing Its Dividend To ¥243.00

Shibaura Mechatronics Corporation (TSE:6590) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of June to ¥243.00. This will take the annual payment to 3.0% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Shibaura Mechatronics

Shibaura Mechatronics' 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. Based on the last payment, Shibaura Mechatronics was paying only paying out a fraction of earnings, but the payment was a massive 115% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

The next year is set to see EPS grow by 9.6%. If the dividend continues on this path, the payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from ¥6.67 total annually to ¥243.00. This means that it has been growing its distributions at 43% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Shibaura Mechatronics has impressed us by growing EPS at 29% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Shibaura Mechatronics' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Shibaura Mechatronics' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

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. For example, we've identified 3 warning signs for Shibaura Mechatronics (2 don't sit too well with us!) that you should be aware of before investing. Is Shibaura Mechatronics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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