Canon (TSE:7751) Will Pay A Dividend Of ¥80.00

Canon Inc. (TSE:7751) has announced that it will pay a dividend of ¥80.00 per share on the 26th of August. This makes the dividend yield 3.5%, which is above the industry average.

Our free stock report includes 3 warning signs investors should be aware of before investing in Canon. Read for free now.

Canon's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Canon was paying out 86% of earnings, but a comparatively small 40% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 17.5%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 72% which would be quite comfortable going to take the dividend forward.

Check out our latest analysis for Canon

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 ¥130.00, compared to the most recent full-year payment of ¥160.00. This implies that the company grew its distributions at a yearly rate of about 2.1% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Canon's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Canon has seen EPS rising for the last five years, at 11% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On Canon's Dividend

Overall, we always like to see the dividend being raised, but we don't think Canon will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

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. For instance, we've picked out 3 warning signs for Canon that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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