Pacific Industrial (TSE:7250) Is Due To Pay A Dividend Of ¥26.00

Pacific Industrial Co., Ltd.'s (TSE:7250) investors are due to receive a payment of ¥26.00 per share on 25th of November. This makes the dividend yield 3.4%, which is above the industry average.

See our latest analysis for Pacific Industrial

Pacific Industrial's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Pacific Industrial's dividend was only 27% of earnings, however it was paying out 471% of free cash flows. While the business may be attempting to set a balanced dividend policy, 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 fall by 9.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 33%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥14.00 in 2014 to the most recent total annual payment of ¥52.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Pacific Industrial has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Pacific Industrial has impressed us by growing EPS at 15% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Pacific Industrial's prospects of growing its dividend payments in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Pacific Industrial is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

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. For example, we've identified 3 warning signs for Pacific Industrial (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is Pacific Industrial 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com