Recomm (TSE:3323) Has Announced A Dividend Of ¥1.60

Recomm Co., Ltd. (TSE:3323) will pay a dividend of ¥1.60 on the 29th of December. The dividend yield will be 1.9% based on this payment which is still above the industry average.

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Recomm's Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Recomm's dividend made up quite a large proportion of earnings but only 66% of free cash flows. This leaves plenty of cash for reinvestment into the business.

If the company can't turn things around, EPS could fall by 17.2% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 146%, which is definitely a bit high to be sustainable going forward.

Check out our latest analysis for Recomm

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥1.00, compared to the most recent full-year payment of ¥1.60. This means that it has been growing its distributions at 4.8% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Recomm's earnings per share has shrunk at 17% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 5 warning signs for Recomm (of which 1 is concerning!) you should know about. Is Recomm 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.