Daido Signal's (TSE:6743) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Daido Signal Co., Ltd. (TSE:6743) has announced that it will be paying its dividend of ¥25.00 on the 30th of June, an increased payment from last year's comparable dividend. This takes the dividend yield to 3.0%, which shareholders will be pleased with.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Daido Signal's stock price has increased by 42% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Daido Signal's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Daido Signal 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.

If the trend of the last few years continues, EPS will grow by 3.7% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.

See our latest analysis for Daido Signal

Daido Signal Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2016, the annual payment back then was ¥7.00, compared to the most recent full-year payment of ¥25.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 3.7% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Daido Signal has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Daido Signal is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for Daido Signal that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.