Arisawa Mfg's (TSE:5208) Dividend Will Be ¥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 5.6%, 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

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Arisawa Mfg's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 127% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to fall by 0.6%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 103%, which is definitely a bit high to be sustainable going forward.

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. Since 2015, the annual payment back then was ¥16.00, compared to the most recent full-year payment of ¥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's Dividend Might Lack Growth

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. It's encouraging to see that Arisawa Mfg has been growing its earnings per share at 58% a 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.

Arisawa Mfg's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Arisawa Mfg will make a great income stock. 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 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. 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 makes us a bit uncomfortable!) 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.