Aichi Tokei Denki (TSE:7723) Is Paying Out A Larger Dividend Than Last Year

Aichi Tokei Denki Co., Ltd.'s (TSE:7723) dividend will be increasing from last year's payment of the same period to ¥45.00 on 25th of November. This will take the dividend yield to an attractive 3.8%, providing a nice boost to shareholder returns.

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Aichi Tokei Denki's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Aichi Tokei Denki's dividend was only 33% of earnings, however it was paying out 582% 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.

Looking forward, earnings per share could rise by 8.5% 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 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Aichi Tokei Denki

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from ¥33.33 total annually to ¥90.00. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Aichi Tokei Denki 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.

We Could See Aichi Tokei Denki's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Aichi Tokei Denki has impressed us by growing EPS at 8.5% per year over the past five years. Aichi Tokei Denki definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Aichi Tokei Denki's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Aichi Tokei Denki 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Aichi Tokei Denki that investors should know about before committing capital to this stock. Is Aichi Tokei Denki 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.