Sumida (TSE:6817) Is Paying Out A Dividend Of ¥27.00

The board of Sumida Corporation (TSE:6817) has announced that it will pay a dividend of ¥27.00 per share on the 6th of March. This makes the dividend yield 4.5%, which will augment investor returns quite nicely.

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Sumida's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment made up 87% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS could expand by 168.1% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Check out our latest analysis for Sumida

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 2015, the dividend has gone from ¥20.00 total annually to ¥53.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year 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.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Sumida has been growing its earnings per share at 168% 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.

Our Thoughts On Sumida's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Sumida's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Sumida (1 is a bit 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.