Daisue Construction (TSE:1814) Is Paying Out A Larger Dividend Than Last Year

Daisue Construction Co., Ltd. (TSE:1814) has announced that it will be increasing 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 Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Daisue 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.

If the company can't turn things around, EPS could fall by 15.2% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 96%, which could put the dividend under pressure if earnings don't start to improve.

Daisue Construction's Dividend Has Lacked Consistency

Looking back, Daisue Construction's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has gone from ¥5.00 total annually to ¥89.00. This implies that the company grew its distributions at a yearly rate of about 38% over that duration. 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.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 15% over the last 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.

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. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Daisue Construction has 3 warning signs (and 2 which make us uncomfortable) 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.

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