Tomen Devices' (TSE:2737) Shareholders Will Receive A Bigger Dividend Than Last Year

Tomen Devices Corporation's (TSE:2737) dividend will be increasing from last year's payment of the same period to ¥300.00 on 26th of June. This will take the dividend yield to an attractive 4.4%, providing a nice boost to shareholder returns.

View our latest analysis for Tomen Devices

Tomen Devices' Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Tomen Devices is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 23.3% over the next 12 months. If the dividend continues on this path, the payout ratio could be 32% 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 annual payment during the last 10 years was ¥40.00 in 2014, and the most recent fiscal year payment was ¥300.00. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Tomen Devices 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Tomen Devices has been growing its earnings per share at 23% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Tomen Devices' payments are rock solid. While Tomen Devices is earning enough to cover the payments, the cash flows are lacking. 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. 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 Tomen Devices (of which 2 make us uncomfortable!) you should know about. Is Tomen Devices 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.