Hagiwara Electric Holdings (TSE:7467) Is Increasing Its Dividend To ¥95.00

The board of Hagiwara Electric Holdings Co., Ltd. (TSE:7467) has announced that it will be paying its dividend of ¥95.00 on the 6th of June, an increased payment from last year's comparable dividend. This makes the dividend yield 5.3%, which is above the industry average.

Check out our latest analysis for Hagiwara Electric Holdings

Hagiwara Electric Holdings' 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, Hagiwara Electric Holdings' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 4.4% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 55% 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 ¥50.00 in 2015, and the most recent fiscal year payment was ¥185.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year 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's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been crawling upwards at 4.4% per year. Hagiwara Electric Holdings is struggling to find viable investments, so it is returning more to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Hagiwara Electric Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Hagiwara Electric Holdings is a great stock to add to your portfolio if income is your focus.

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. To that end, Hagiwara Electric Holdings has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Hagiwara Electric Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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