ULVAC (TSE:6728) Is Increasing Its Dividend To ¥164.00

ULVAC, Inc. (TSE:6728) will increase its dividend from last year's comparable payment on the 30th of September to ¥164.00. This will take the annual payment to 3.1% of the stock price, which is above what most companies in the industry pay.

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ULVAC's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, ULVAC was paying only paying out a fraction of earnings, but the payment was a massive 226% of 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.

Looking forward, earnings per share is forecast to rise by 13.2% over the next year. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for ULVAC

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from ¥30.00 total annually to ¥164.00. This means that it has been growing its distributions at 19% 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.

ULVAC Could Grow Its Dividend

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. ULVAC has seen EPS rising for the last five years, at 9.3% per annum. ULVAC definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On ULVAC's Dividend

In summary, while it's always good to see the dividend being raised, we don't think ULVAC's payments are rock solid. While ULVAC is earning enough to cover the payments, the cash flows are lacking. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for ULVAC that investors need to be conscious of moving forward. Is ULVAC not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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