Topcon's (TSE:7732) Dividend Will Be ¥22.00

The board of Topcon Corporation (TSE:7732) has announced that it will pay a dividend on the 9th of June, with investors receiving ¥22.00 per share. This means the annual payment is 2.5% of the current stock price, which is above the average for the industry.

See our latest analysis for Topcon

Topcon's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand by 29.9%. If the dividend continues along recent trends, we estimate the payout ratio could reach 86%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥10.00 in 2014, and the most recent fiscal year payment was ¥42.00. This means that it has been growing its distributions at 15% per annum over that time. Topcon 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.

Topcon May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Topcon's earnings per share has fallen at approximately 3.6% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Topcon's Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Topcon make more consistent payments in the future. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.

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. Case in point: We've spotted 4 warning signs for Topcon (of which 2 are significant!) you should know about. Is Topcon 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.