Meiko Electronics (TSE:6787) Will Pay A Dividend Of ¥45.00

The board of Meiko Electronics Co., Ltd. (TSE:6787) has announced that it will pay a dividend of ¥45.00 per share on the 1st of December. The payment will take the dividend yield to 1.3%, which is in line with the average for the industry.

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Meiko Electronics' Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Meiko Electronics' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 12.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 17% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Meiko Electronics

Meiko Electronics' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was ¥10.00 in 2017, and the most recent fiscal year payment was ¥90.00. This means that it has been growing its distributions at 32% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Meiko Electronics has impressed us by growing EPS at 42% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Meiko Electronics' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Meiko Electronics' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Meiko Electronics is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Meiko Electronics that you should be aware of before investing. Is Meiko Electronics not quite the opportunity you were looking for? Why not check out our selection of top 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.