SoftBank (TSE:9434) Will Pay A Dividend Of ¥43.00

SoftBank Corp. (TSE:9434) will pay a dividend of ¥43.00 on the 6th of December. This means the annual payment is 4.4% of the current stock price, which is above the average for the industry.

View our latest analysis for SoftBank

SoftBank's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, SoftBank was paying out 83% of earnings, but a comparatively small 60% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 6.9% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 84% which is a bit high but can definitely be sustainable.

SoftBank Is Still Building Its Track Record

It is great to see that SoftBank has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of ¥37.50 in 2019 to the most recent total annual payment of ¥86.00. This means that it has been growing its distributions at 18% per annum over that time. SoftBank has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 2.7% per year. Slow growth and a high payout ratio could mean that SoftBank has maxed out the amount that it has been able to pay to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On SoftBank's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

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. As an example, we've identified 2 warning signs for SoftBank that you should be aware of before investing. Is SoftBank not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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