Kumagai GumiLtd (TSE:1861) Is Due To Pay A Dividend Of ¥130.00

Kumagai Gumi Co.,Ltd. (TSE:1861) has announced that it will pay a dividend of ¥130.00 per share on the 18th of July. Based on this payment, the dividend yield will be 3.3%, which is fairly typical for the industry.

View our latest analysis for Kumagai GumiLtd

Kumagai GumiLtd's Future Dividend Projections Appear Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before this announcement, Kumagai GumiLtd was paying out 87% of earnings, but a comparatively small 37% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 33.3%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 74% which brings it into quite a comfortable range.

Kumagai GumiLtd Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of ¥20.00 in 2015 to the most recent total annual payment of ¥130.00. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Kumagai GumiLtd's EPS has declined at around 16% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Kumagai GumiLtd's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kumagai GumiLtd's payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. 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. Taking the debate a bit further, we've identified 1 warning sign for Kumagai GumiLtd that investors need to be conscious of moving forward. 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.