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

HORIBA, Ltd. (TSE:6856) has announced that it will pay a dividend of ¥185.00 per share on the 4th of March. The yield is still above the industry average at 3.1%.

View our latest analysis for HORIBA

HORIBA's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, HORIBA's dividend was only 36% 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.

Over the next year, EPS is forecast to expand by 9.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

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 ¥60.00 in 2014, and the most recent fiscal year payment was ¥290.00. This means that it has been growing its distributions at 17% per annum over that time. HORIBA has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. HORIBA has seen EPS rising for the last five years, at 15% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for HORIBA's prospects of growing its dividend payments in the future.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While HORIBA is earning enough to cover the payments, the cash flows are lacking. We don't think HORIBA 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. For example, we've picked out 1 warning sign for HORIBA that investors should know about before committing capital to this stock. Is HORIBA 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.