Arisawa Mfg (TSE:5208) Has Announced A Dividend Of ¥44.00

Arisawa Mfg. Co., Ltd. (TSE:5208) has announced that it will pay a dividend of ¥44.00 per share on the 3rd of December. This will take the dividend yield to an attractive 5.6%, providing a nice boost to shareholder returns.

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Estimates Indicate Arisawa Mfg's Could Struggle to Maintain Dividend Payments In The Future

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Arisawa Mfg was paying out quite a large proportion of both earnings and cash flow, with the dividend being 127% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to fall by 2.8%. If the dividend continues along recent trends, we estimate the payout ratio could reach 99%, which could put the dividend in jeopardy if the company's earnings don't improve.

View our latest analysis for Arisawa Mfg

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥16.00 in 2015, and the most recent fiscal year payment was ¥88.00. This means that it has been growing its distributions at 19% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Arisawa Mfg Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Arisawa Mfg has grown earnings per share at 81% per year over the past five years. However, Arisawa Mfg isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

Arisawa Mfg's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Arisawa Mfg's payments are rock solid. Strong earnings growth means Arisawa Mfg has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Arisawa Mfg (1 is a bit unpleasant!) that you should be aware of before investing. 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.