Daisue Construction (TSE:1814) Is Increasing Its Dividend To ¥44.50

Daisue Construction Co., Ltd. (TSE:1814) will increase its dividend from last year's comparable payment on the 2nd of December to ¥44.50. This takes the dividend yield to 5.3%, which shareholders will be pleased with.

Check out our latest analysis for Daisue Construction

Daisue Construction's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Daisue Construction's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to fall by 12.8% over the next 12 months if recent trends continue. If recent patterns in the dividend continue, we could see the payout ratio reaching 82% in the next 12 months which is on the higher end of the range we would say is sustainable.

Daisue Construction's Dividend Has Lacked Consistency

It's comforting to see that Daisue Construction has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2015, the annual payment back then was ¥5.00, compared to the most recent full-year payment of ¥89.00. This implies that the company grew its distributions at a yearly rate of about 38% over that duration. Daisue Construction 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.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Daisue Construction's EPS has declined at around 13% a year. 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.

Daisue Construction's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Daisue Construction will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Daisue Construction you should be aware of, and 1 of them is a bit concerning. 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.