SK-ElectronicsLTD (TSE:6677) Will Pay A Larger Dividend Than Last Year At ¥167.00

SK-Electronics CO.,LTD. (TSE:6677) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of December to ¥167.00. This takes the dividend yield to 5.4%, which shareholders will be pleased with.

Check out our latest analysis for SK-ElectronicsLTD

SK-ElectronicsLTD's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. SK-ElectronicsLTD was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Looking forward, earnings per share is forecast to rise by 41.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 dividend has gone from an annual total of ¥10.00 in 2014 to the most recent total annual payment of ¥167.00. This implies that the company grew its distributions at a yearly rate of about 33% over that duration. SK-ElectronicsLTD 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 Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been sinking by 12% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On SK-ElectronicsLTD's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for SK-ElectronicsLTD that investors need to be conscious of moving forward. 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.

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