Seikitokyu Kogyo (TSE:1898) Has Affirmed Its Dividend Of ¥45.00

The board of Seikitokyu Kogyo Co., Ltd. (TSE:1898) has announced that it will pay a dividend on the 4th of December, with investors receiving ¥45.00 per share. This makes the dividend yield 5.1%, which will augment investor returns quite nicely.

Check out our latest analysis for Seikitokyu Kogyo

Seikitokyu Kogyo Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 124% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 41%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, EPS could fall by 2.7% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 148%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was ¥10.00, compared to the most recent full-year payment of ¥90.00. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. 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.

Seikitokyu Kogyo May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Seikitokyu Kogyo's EPS has declined at around 2.7% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

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. Just as an example, we've come across 2 warning signs for Seikitokyu Kogyo you should be aware of, and 1 of them is significant. Is Seikitokyu Kogyo not quite the opportunity you were looking for? Why not check out our selection of top 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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