Elecom (TSE:6750) Is Paying Out A Larger Dividend Than Last Year

The board of Elecom Co., Ltd. (TSE:6750) has announced that it will be paying its dividend of ¥24.00 on the 9th of December, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.9%.

View our latest analysis for Elecom

Elecom's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite easily covered by Elecom's earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 7.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from ¥8.25 total annually to ¥48.00. 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.

Elecom Could Grow Its Dividend

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. Elecom has seen EPS rising for the last five years, at 6.8% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Our Thoughts On Elecom's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Elecom that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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