Oriental Shiraishi (TSE:1786) Will Pay A Dividend Of ¥7.50

The board of Oriental Shiraishi Corporation (TSE:1786) has announced that it will pay a dividend of ¥7.50 per share on the 26th of June. This means the dividend yield will be fairly typical at 3.5%.

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Oriental Shiraishi's Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Oriental Shiraishi's dividend was only 53% of earnings, however it was paying out 115% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next year is set to see EPS grow by 9.3%. If the dividend continues along recent trends, we estimate the payout ratio will be , which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Oriental Shiraishi

Oriental Shiraishi's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The annual payment during the last 4 years was ¥11.00 in 2022, and the most recent fiscal year payment was ¥14.50. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Oriental Shiraishi might have put its house in order since then, but we remain cautious.

Dividend Growth Potential Is Shaky

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. Oriental Shiraishi's EPS has fallen by approximately 49% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. 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.

Oriental Shiraishi's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Oriental Shiraishi is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Oriental Shiraishi that investors need to be conscious of moving forward. 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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