SCREEN Holdings Co., Ltd. (TSE:7735) has announced that it will pay a dividend of ¥127.00 per share on the 24th of June. The dividend yield of 2.4% is still a nice boost to shareholder returns, despite the cut.
View our latest analysis for SCREEN Holdings
SCREEN Holdings' Future Dividend Projections Appear Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. But before making this announcement, SCREEN Holdings' earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 89% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.
Looking forward, earnings per share is forecast to rise by 6.5% over the next year. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥12.50 in 2014 to the most recent total annual payment of ¥247.00. This means that it has been growing its distributions at 35% per annum over that time. SCREEN Holdings 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. It's encouraging to see that SCREEN Holdings has been growing its earnings per share at 52% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We don't think SCREEN Holdings is a great stock to add to your portfolio if income is your focus.
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 SCREEN Holdings (of which 1 can't be ignored!) you should know about. Is SCREEN Holdings 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.
About TSE:7735
SCREEN Holdings
Develops, manufactures, sells, and maintains semiconductor production equipment in Japan.
Flawless balance sheet, undervalued and pays a dividend.
