Icom Incorporated (TSE:6820) will pay a dividend of ¥25.00 on the 4th of December. This means that the annual payment will be 2.6% of the current stock price, which is in line with the average for the industry.
Check out our latest analysis for Icom
Icom's Earnings Easily Cover The Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Icom was paying only paying out a fraction of earnings, but the payment was a massive 525% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share could rise by 12.7% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥30.00 in 2014, and the most recent fiscal year payment was ¥79.00. This means that it has been growing its distributions at 10% 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
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. Icom has seen EPS rising for the last five years, at 13% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Icom's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Icom that investors need to be conscious of moving forward. 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.
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About TSE:6820
Icom
Manufactures and sells telecommunications equipment to individual and corporate customers primarily in Japan, the United States, Canada, Germany, Spain, Australia, China, and Vietnam.
Flawless balance sheet second-rate dividend payer.
