Aichi Tokei Denki (TSE:7723) Has Announced That It Will Be Increasing Its Dividend To ¥45.00

Aichi Tokei Denki Co., Ltd. (TSE:7723) will increase its dividend from last year's comparable payment on the 25th of November to ¥45.00. This takes the dividend yield to 3.4%, which shareholders will be pleased with.

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Aichi Tokei Denki's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Aichi Tokei Denki's dividend was only 30% of earnings, however it was paying out 582% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share could rise by 10.2% over the next year if the trend from the last few years continues. 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.

Check out our latest analysis for Aichi Tokei Denki

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥33.33, compared to the most recent full-year payment of ¥90.00. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. 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 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. Aichi Tokei Denki has impressed us by growing EPS at 10% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Aichi Tokei Denki's prospects of growing its dividend payments in the future.

Our Thoughts On Aichi Tokei Denki's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Aichi Tokei Denki's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Aichi Tokei Denki that investors need to be conscious of moving forward. 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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