HORIBA's (TSE:6856) Dividend Will Be ¥185.00

HORIBA, Ltd.'s (TSE:6856) investors are due to receive a payment of ¥185.00 per share on 4th of March. The yield is still above the industry average at 3.0%.

Check out our latest analysis for HORIBA

HORIBA's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, HORIBA's dividend was only 26% of earnings, however it was paying out 102% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 9.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, 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. The annual payment during the last 10 years was ¥45.00 in 2014, and the most recent fiscal year payment was ¥290.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. 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. HORIBA has impressed us by growing EPS at 15% per year over the past five years. HORIBA definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think HORIBA 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for HORIBA that investors should know about before committing capital to this stock. 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.