Sumida (TSE:6817) Has Affirmed Its Dividend Of ¥26.00

The board of Sumida Corporation (TSE:6817) has announced that it will pay a dividend of ¥26.00 per share on the 27th of August. This means the annual payment is 5.4% of the current stock price, which is above the average for the industry.

Our free stock report includes 3 warning signs investors should be aware of before investing in Sumida. Read for free now.

Sumida's Future Dividends May Potentially Be At Risk

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Sumida's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

If the company can't turn things around, EPS could fall by 7.2% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 245%, which is definitely a bit high to be sustainable going forward.

View our latest analysis for Sumida

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥20.00 in 2015 to the most recent total annual payment of ¥53.00. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. 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.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, Sumida's earnings per share has shrunk at approximately 7.2% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Sumida's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Sumida 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Sumida has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Sumida not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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