The (TSE:6407) The dividend will increase to ¥30.00 compared to the payment made in the same period last year on December 11. The payment increases the dividend yield to 2.2%, which is in line with the industry average.

Check out our latest analysis for CKD

CKD payment shows solid revenue coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, CKD earned enough to cover the dividend, but free cash flows were not positive. Since the company is not making any money, paying out to shareholders is bound to become difficult at some point.

Earnings per share are expected to grow by 18.5% next year. If the dividend follows recent trends, we estimate the payout ratio to be 38%, a range that makes us comfortable with the sustainability of the dividend.

Dividend volatility

Although the company has a long history of paying dividends, it has cut them at least once in the last 10 years. The dividend has increased from an annual total of ¥16.00 in 2014 to the most recent annual total payout of ¥71.00. This means that the company has increased its payouts by about 16% annually during this period. Dividends have grown rapidly during this time, but given the history of cuts, we are not sure if this stock will be a reliable source of income in the future.

The dividend is likely to increase

Rising earnings per share could be a mitigating factor when considering past dividend fluctuations. CKD has seen earnings per share grow 25% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and rising earnings also make it very easy for it to increase the dividend.

In summary

In summary, while it’s always good to see a dividend increase, we don’t think CKD’s payments are rock solid. Given the lack of cash flows, it’s hard to imagine the company being able to sustain a dividend payment. We’d probably look elsewhere for an income-producing investment.

Investors generally prefer companies with a consistent, stable dividend policy over companies with irregular dividend policies. Although dividend payments are important, they are not the only factors our readers should consider when evaluating a company. A typical example: We have 2 warning signs of CKD (1 of which is concerning!) that you should know about. Looking for more high-yield dividend ideas? Try our Collection of strong dividend payers.

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