DENSO (TSE:6902) Has Announced A Dividend Of ¥32.00

The board of DENSO Corporation (TSE:6902) has announced that it will pay a dividend of ¥32.00 per share on the 27th of May. This means that the annual payment will be 3.0% of the current stock price, which is in line with the average for the industry.

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DENSO's Projected Earnings Seem Likely To Cover Future Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last dividend, DENSO is earning enough to cover the payment, but then it makes up 144% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 14.3% over the next year. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for DENSO

DENSO Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2016, the dividend has gone from ¥27.50 total annually to ¥64.00. This implies that the company grew its distributions at a yearly rate of about 8.8% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that DENSO has grown earnings per share at 25% per year over the past five years. DENSO is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think DENSO 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for DENSO that investors should take into consideration. 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.