Aichi Tokei Denki (TSE:7723) Will Pay A Larger Dividend Than Last Year At ¥35.00

Aichi Tokei Denki Co., Ltd. (TSE:7723) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of November to ¥35.00. This makes the dividend yield 3.0%, which is above the industry average.

See our latest analysis for Aichi Tokei Denki

Aichi Tokei Denki's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Aichi Tokei Denki was paying a whopping 212% as a dividend, but this only made up 22% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 9.3% over the next year. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥30.00 in 2014, and the most recent fiscal year payment was ¥70.00. This means that it has been growing its distributions at 8.8% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Aichi Tokei Denki has only grown its earnings per share at 2.3% per annum over the past five years. While growth may be thin on the ground, Aichi Tokei Denki could always pay out a higher proportion of earnings to increase shareholder returns.

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. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Aichi Tokei Denki that you should be aware of before investing. 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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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.

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