Yorozu (TSE:7294) Will Pay A Dividend Of ¥15.00

The board of Yorozu Corporation (TSE:7294) has announced that it will pay a dividend of ¥15.00 per share on the 10th of December. This means that the annual payment will be 3.1% of the current stock price, which is in line with the average for the industry.

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Yorozu Might Find It Hard To Continue The Dividend

Solid dividend yields are great, but they only really help us if the payment is sustainable. Even though Yorozu is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Over the next year, EPS could expand by 9.2% if recent trends continue. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unless this happens fairly soon, the dividend could start to come under pressure.

See our latest analysis for Yorozu

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was ¥22.00, compared to the most recent full-year payment of ¥31.00. This implies that the company grew its distributions at a yearly rate of about 3.5% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Has 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. Yorozu has impressed us by growing EPS at 9.2% per year over the past five years. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

Yorozu'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. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Yorozu that investors should know about before committing capital to this stock. 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.