Tokyo Electron's (TSE:8035) Shareholders Will Receive A Bigger Dividend Than Last Year

Tokyo Electron Limited (TSE:8035) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of May to ¥306.00. This will take the annual payment to 2.6% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Tokyo Electron

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by Tokyo Electron's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 12.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 60% by next year, which is in a pretty sustainable range.

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. Since 2014, the annual payment back then was ¥16.67, compared to the most recent full-year payment of ¥612.00. This works out to be a compound annual growth rate (CAGR) of approximately 43% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

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 21% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Tokyo Electron could prove to be a strong dividend payer.

Tokyo Electron Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Tokyo Electron is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For instance, we've picked out 2 warning signs for Tokyo Electron that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.