Keiyo Bank (TSE:8544) Is Increasing Its Dividend To ¥13.00

The board of The Keiyo Bank, Ltd. (TSE:8544) has announced that it will be paying its dividend of ¥13.00 on the 4th of December, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 3.1%.

See our latest analysis for Keiyo Bank

Keiyo Bank's Payment Expected To Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time.

Keiyo Bank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on Keiyo Bank's last earnings report, the payout ratio is at a decent 26%, meaning that the company is able to pay out its dividend with a bit of room to spare.

If the trend of the last few years continues, EPS will grow by 2.0% over the next 12 months. If the dividend continues on this path, the future payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from ¥20.00 total annually to ¥26.00. This works out to be a compound annual growth rate (CAGR) of approximately 2.7% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Keiyo Bank May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Keiyo Bank's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, Keiyo Bank could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Keiyo Bank's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Keiyo Bank that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.

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