HKS (TSE:7219) Is Due To Pay A Dividend Of ¥65.00

HKS Co., Ltd.'s (TSE:7219) investors are due to receive a payment of ¥65.00 per share on 1st of December. Based on this payment, the dividend yield on the company's stock will be 3.3%, which is an attractive boost to shareholder returns.

We've discovered 2 warning signs about HKS. View them for free.

HKS' Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, HKS' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 26.8% over the next 12 months. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for HKS

HKS Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was ¥30.00, compared to the most recent full-year payment of ¥65.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. 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. HKS has seen EPS rising for the last five years, at 27% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

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 the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think HKS is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for HKS that investors need to be conscious of moving forward. Is HKS 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.