CMK (TSE:6958) Will Pay A Larger Dividend Than Last Year At ¥11.00

CMK Corporation (TSE:6958) will increase its dividend from last year's comparable payment on the 28th of June to ¥11.00. This will take the annual payment to 1.8% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for CMK

CMK's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, CMK was paying only paying out a fraction of earnings, but the payment was a massive 2,194% of 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 47.0%. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from ¥2.50 total annually to ¥11.00. This means that it has been growing its distributions at 16% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Limited Growth Potential

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. CMK's earnings per share has shrunk at 11% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

We should note that CMK has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

CMK's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think CMK's payments are rock solid. While CMK is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 4 warning signs for CMK that investors should know about before committing capital to this stock. Is CMK not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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