Tokyo Seimitsu (TSE:7729) Has Announced That It Will Be Increasing Its Dividend To ¥108.00

Tokyo Seimitsu Co., Ltd.'s (TSE:7729) dividend will be increasing from last year's payment of the same period to ¥108.00 on 11th of December. This will take the annual payment to 3.0% of the stock price, which is above what most companies in the industry pay.

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. Tokyo Seimitsu's stock price has reduced by 39% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

See our latest analysis for Tokyo Seimitsu

Tokyo Seimitsu's 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. Prior to this announcement, Tokyo Seimitsu's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 13.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥216.00. This works out to be a compound annual growth rate (CAGR) of approximately 27% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Tokyo Seimitsu Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Tokyo Seimitsu has been growing its earnings per share at 8.4% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Tokyo Seimitsu's prospects of growing its dividend payments in the future.

Our Thoughts On Tokyo Seimitsu's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Tokyo Seimitsu's 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Tokyo Seimitsu that investors need to be conscious of moving forward. Is Tokyo Seimitsu not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.