Wakachiku Construction (TSE:1888) Has Announced That It Will Be Increasing Its Dividend To ¥131.00

Wakachiku Construction Co., Ltd.'s (TSE:1888) dividend will be increasing from last year's payment of the same period to ¥131.00 on 8th of June. This makes the dividend yield about the same as the industry average at 2.9%.

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Wakachiku Construction's Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Wakachiku Construction's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share could rise by 36.3% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Wakachiku Construction

Wakachiku Construction Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from ¥20.00 total annually to ¥131.00. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Wakachiku Construction has been growing its earnings per share at 36% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On Wakachiku Construction's Dividend

Overall, we always like to see the dividend being raised, but we don't think Wakachiku Construction will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Wakachiku Construction that investors should take into consideration. 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.