Wakachiku Construction's (TSE:1888) Upcoming Dividend Will Be Larger Than Last Year's

The board of Wakachiku Construction Co., Ltd. (TSE:1888) has announced that it will be increasing its dividend by 5.0% on the 6th of June to ¥126.00, up from last year's comparable payment of ¥120.00. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.

View our latest analysis for Wakachiku Construction

Wakachiku Construction's Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Wakachiku Construction was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share could rise by 3.5% 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 45% by next year, which we think can be pretty sustainable going forward.

Wakachiku Construction Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ¥20.00 in 2014, and the most recent fiscal year payment was ¥120.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 3.5% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, Wakachiku Construction could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

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 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Wakachiku Construction that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.