Tokyo Electron Device's (TSE:2760) Dividend Will Be ¥65.00

Tokyo Electron Device Limited's (TSE:2760) investors are due to receive a payment of ¥65.00 per share on 30th of May. This means the annual payment is 3.8% of the current stock price, which is above the average for the industry.

See our latest analysis for Tokyo Electron Device

Tokyo Electron Device'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. Before making this announcement, Tokyo Electron Device was paying a whopping 160% as a dividend, but this only made up 39% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 10.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% 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. The annual payment during the last 10 years was ¥20.00 in 2014, and the most recent fiscal year payment was ¥117.00. This works out to be a compound annual growth rate (CAGR) of approximately 19% 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Tokyo Electron Device has been growing its earnings per share at 34% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Tokyo Electron Device's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. Case in point: We've spotted 3 warning signs for Tokyo Electron Device (of which 1 is a bit concerning!) you should know about. 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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