Sanyo Electric RailwayLtd (TSE:9052) Will Pay A Dividend Of ¥15.00

The board of Sanyo Electric Railway Co.,Ltd. (TSE:9052) has announced that it will pay a dividend on the 24th of June, with investors receiving ¥15.00 per share. This payment means that the dividend yield will be 1.5%, which is around the industry average.

See our latest analysis for Sanyo Electric RailwayLtd

Sanyo Electric RailwayLtd's Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Sanyo Electric RailwayLtd's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 0.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥30.00. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Sanyo Electric RailwayLtd's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Sanyo Electric RailwayLtd'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. While Sanyo Electric RailwayLtd is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Sanyo Electric RailwayLtd that investors should know about before committing capital to this stock. 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.