Tsuzuki Denki's (TSE:8157) Dividend Will Be ¥50.00

Tsuzuki Denki Co., Ltd. (TSE:8157) will pay a dividend of ¥50.00 on the 1st of December. This will take the annual payment to 3.5% of the stock price, which is above what most companies in the industry pay.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Tsuzuki Denki's stock price has increased by 39% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Tsuzuki 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, 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% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share could rise by 7.6% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.

Check out 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. Since 2015, the dividend has gone from ¥8.00 total annually to ¥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.

Tsuzuki Denki Could Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Tsuzuki Denki has been growing its earnings per share at 7.6% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

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 company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

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 identified 2 warning signs for Tsuzuki Denki (1 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.