ITOCHU (TSE:8001) Has Announced That It Will Be Increasing Its Dividend To ¥110.00
ITOCHU Corporation's (TSE:8001) dividend will be increasing from last year's payment of the same period to ¥110.00 on 23rd of June. The payment will take the dividend yield to 2.3%, which is in line with the average for the industry.
Estimates Indicate ITOCHU's Could Struggle to Maintain Dividend Payments In The Future
We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, ITOCHU's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
The next 12 months is set to see EPS grow by 4.9%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 170% over the next year.
See our latest analysis for ITOCHU
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥46.00 in 2015, and the most recent fiscal year payment was ¥44.00. Payments have been decreasing at a very slow pace in this time period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though ITOCHU's EPS has declined at around 16% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
Our Thoughts On ITOCHU's Dividend
Overall, we always like to see the dividend being raised, but we don't think ITOCHU will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think ITOCHU is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for ITOCHU that you should be aware of before investing. 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.