Arisawa Mfg (TSE:5208) Will Pay A Dividend Of ¥44.00

Arisawa Mfg. Co., Ltd.'s (TSE:5208) investors are due to receive a payment of ¥44.00 per share on 3rd of December. This makes the dividend yield 6.0%, which is above the industry average.

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Arisawa Mfg'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. 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. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share is forecast to fall by 2.8% over the next year. 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 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 ¥16.00 in 2015, and the most recent fiscal year payment was ¥88.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Arisawa Mfg 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

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Arisawa Mfg has impressed us by growing EPS at 81% per year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Arisawa Mfg will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Arisawa Mfg is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Arisawa Mfg (1 is concerning!) 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.