Tsuzuki Denki (TSE:8157) Is Due To Pay A Dividend Of ¥50.00

The board of Tsuzuki Denki Co., Ltd. (TSE:8157) has announced that it will pay a dividend of ¥50.00 per share on the 1st of December. This will take the annual payment to 3.2% of the stock price, which is above what most companies in the industry pay.

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Tsuzuki Denki's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Tsuzuki Denki was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 86% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

If the trend of the last few years continues, EPS will grow by 9.5% over the next 12 months. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Tsuzuki Denki

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥8.00 in 2015, and the most recent fiscal year payment was ¥100.00. This works out to be a compound annual growth rate (CAGR) of approximately 29% a year over that time. Tsuzuki 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 Tsuzuki Denki's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Tsuzuki Denki has been growing its earnings per share at 9.5% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Tsuzuki Denki's prospects of growing its dividend payments in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Tsuzuki Denki will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Tsuzuki Denki has been making. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Tsuzuki 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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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.