ROHM (TSE:6963) Is Paying Out A Dividend Of ¥25.00

ROHM Co., Ltd. (TSE:6963) will pay a dividend of ¥25.00 on the 26th of June. This makes the dividend yield 2.1%, which will augment investor returns quite nicely.

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ROHM Might Find It Hard To Continue The Dividend

A big dividend yield for a few years doesn't mean much if it can't be sustained. Even in the absence of profits, ROHM is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Looking forward, earnings per share is forecast to rise by 79.4% over the next year. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unless this happens fairly soon, the dividend could start to come under pressure.

Check out our latest analysis for ROHM

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2016, the dividend has gone from ¥22.50 total annually to ¥50.00. This implies that the company grew its distributions at a yearly rate of about 8.3% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Limited Growth Potential

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. ROHM's earnings per share has shrunk at 27% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

ROHM's Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. We don't think that this is a great candidate to be an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, ROHM has 2 warning signs (and 1 which is significant) we think you should know about. Is ROHM not quite the opportunity you were looking for? Why not check out our selection of top 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.