Shibaura Mechatronics (TSE:6590) Is 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 takes the dividend yield to 3.1%, which shareholders will be pleased with.

Check out our latest analysis for Shibaura Mechatronics

Shibaura Mechatronics' Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Shibaura Mechatronics was paying a whopping 115% as a dividend, but this only made up 29% 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 9.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥6.67 in 2014, and the most recent fiscal year payment was ¥243.00. This works out to be a compound annual growth rate (CAGR) of approximately 43% a year over that time. Shibaura Mechatronics has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Shibaura Mechatronics has seen EPS rising for the last five years, at 29% per annum. 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.

In Summary

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. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Shibaura Mechatronics (of which 2 are concerning!) you should know about. 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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