The board of Seikitokyu Kogyo Co., Ltd. (TSE:1898) has announced that it will pay a dividend on the 24th of June, with investors receiving ¥45.00 per share. Based on this payment, the dividend yield on the company's stock will be 6.0%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Seikitokyu Kogyo
Seikitokyu Kogyo's Future Dividends May Potentially Be At Risk
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 117% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
If the company can't turn things around, EPS could fall by 8.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 156%, which could put the dividend in jeopardy if the company's earnings don't improve.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ¥10.00 in 2014 to the most recent total annual payment of ¥90.00. This implies that the company grew its distributions at a yearly rate of about 25% 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 Is Doubtful
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 8.9% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.
We're Not Big Fans Of Seikitokyu Kogyo's Dividend
In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Seikitokyu Kogyo that investors should know about before committing capital to this stock. 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.
About TSE:1898
Seikitokyu Kogyo
Engages in the paving of roads, expressways, and bridges in Japan.
Excellent balance sheet with proven track record.
