Micronics Japan's (TSE:6871) Dividend Will Be Increased To ¥72.00

Micronics Japan Co., Ltd. (TSE:6871) will increase its dividend from last year's comparable payment on the 30th of March to ¥72.00. Based on this payment, the dividend yield for the company will be 1.1%, which is fairly typical for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Micronics Japan's stock price has increased by 51% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Micronics Japan's Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Micronics Japan was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 22.4%. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Micronics Japan

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was ¥10.00, compared to the most recent full-year payment of ¥72.00. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Micronics Japan 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Micronics Japan has grown earnings per share at 46% 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 Micronics Japan's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Micronics Japan's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Micronics Japan that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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