Arisawa Mfg (TSE:5208) Is Due To Pay A Dividend Of ¥44.00

Arisawa Mfg. Co., Ltd. (TSE:5208) will pay a dividend of ¥44.00 on the 3rd of December. This will take the dividend yield to an attractive 5.8%, providing a nice boost to shareholder returns.

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Arisawa Mfg's Projections Indicate Future Payments May Be Unsustainable

A big dividend yield for a few years doesn't mean much if it can't be sustained. At the time of the last dividend payment, Arisawa Mfg was paying out a very large proportion of what it was earning and 127% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

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.

Check out 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 dividend has gone from an annual total of ¥16.00 in 2015 to the most recent total annual payment of ¥88.00. This means that it has been growing its distributions at 19% per annum 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.

Arisawa Mfg's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Arisawa Mfg has seen EPS rising for the last five years, at 81% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Arisawa Mfg hasn't been doing.

The Dividend Could Prove To Be Unreliable

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 be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Arisawa Mfg has 2 warning signs (and 1 which is a bit concerning) we think you should know about. 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.