Tokyo Electron's (TSE:8035) Dividend Will Be ¥269.00

Tokyo Electron Limited (TSE:8035) has announced that it will pay a dividend of ¥269.00 per share on the 28th of May. The yield is still above the industry average at 1.7%.

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 Tokyo Electron's stock price has increased by 54% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Tokyo Electron's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite comfortably covered by Tokyo Electron's earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Looking forward, earnings per share is forecast to rise by 9.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Tokyo Electron

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 annual payment during the last 10 years was ¥46.67 in 2015, and the most recent fiscal year payment was ¥533.00. This works out to be a compound annual growth rate (CAGR) of approximately 28% 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Tokyo Electron has seen EPS rising for the last five years, at 20% per annum. Tokyo Electron is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 Tokyo Electron 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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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.