Fukuda (TSE:1899) Is Paying Out A Dividend Of ¥200.00

Fukuda Corporation (TSE:1899) has announced that it will pay a dividend of ¥200.00 per share on the 30th of March. This means the annual payment is 3.5% of the current stock price, which is above the average for the industry.

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Fukuda’s Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. Fukuda is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, EPS could fall by 3.0% if the company can’t turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 35%, which we consider to be quite comfortable, with most of the company’s earnings left over to grow the business in the future.

View our latest analysis for Fukuda

Fukuda Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥45.00 in 2015, and the most recent fiscal year payment was ¥200.00. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Fukuda May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. However, things aren’t all that rosy. It’s not great to see that Fukuda’s earnings per share has fallen at approximately 3.0% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

In summary, while it’s good to see that the dividend hasn’t been cut, we are a bit cautious about Fukuda’s payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don’t think Fukuda is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Fukuda has 3 warning signs (and 2 which make us uncomfortable) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.