Tokyu Construction (TSE:1720) Has Affirmed Its Dividend Of ¥18.00

Tokyu Construction Co., Ltd. (TSE:1720) has announced that it will pay a dividend of ¥18.00 per share on the 28th of June. The dividend yield will be 4.2% based on this payment which is still above the industry average.

See our latest analysis for Tokyu Construction

Tokyu Construction's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Tokyu Construction's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 14.5% over the next year. If the dividend continues on this path, the payout ratio could be 60% 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 ¥3.00 total annually to ¥36.00. This means that it has been growing its distributions at 28% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Tokyu Construction's earnings per share has shrunk at 18% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Tokyu Construction's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Tokyu Construction is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Tokyu Construction 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.