Yurtec (TSE:1934) Has Announced That It Will Be Increasing Its Dividend To ¥40.00

Yurtec Corporation (TSE:1934) will increase its dividend on the 26th of June to ¥40.00, which is 43% higher than last year's payment from the same period of ¥28.00. The payment will take the dividend yield to 2.9%, which is in line with the average for the industry.

Check out our latest analysis for Yurtec

Yurtec'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. However, prior to this announcement, Yurtec was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 84% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Over the next year, EPS could expand by 17.5% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥10.00 in 2015 to the most recent total annual payment of ¥51.00. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Yurtec has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Yurtec has been growing its earnings per share at 18% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Yurtec's prospects of growing its dividend payments in the future.

Our Thoughts On Yurtec's Dividend

Overall, we always like to see the dividend being raised, but we don't think Yurtec will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For example, we've picked out 2 warning signs for Yurtec that investors should know about before committing capital to this stock. 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.