Kajima's (TSE:1812) Dividend Will Be Increased To ¥59.00

The board of Kajima Corporation (TSE:1812) has announced that it will be paying its dividend of ¥59.00 on the 26th of June, an increased payment from last year's comparable dividend. This takes the annual payment to 3.2% of the current stock price, which is about average for the industry.

View our latest analysis for Kajima

Kajima's Projected Earnings Seem Likely To Cover Future Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Kajima'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.

Over the next year, EPS is forecast to expand by 10.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.

Kajima Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the dividend has gone from ¥10.00 total annually to ¥104.00. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings have grown at around 4.9% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 4.9% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Kajima has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. 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.