The board of Yurtec Corporation (TSE:1934) has announced that it will pay a dividend of ¥23.00 per share on the 2nd of December. The payment will take the dividend yield to 3.3%, which is in line with the average for the industry.
View our latest analysis for Yurtec
Yurtec's Dividend Is Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Yurtec was paying only paying out a fraction of earnings, but the payment was a massive 307% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
Looking forward, earnings per share could rise by 2.5% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, 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 2014 to the most recent total annual payment of ¥46.00. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 2.5% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Yurtec has the option to increase the payout ratio to return more cash to shareholders.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
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. Taking the debate a bit further, we've identified 2 warning signs for Yurtec that investors need to be conscious of moving forward. 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.
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About TSE:1934
Yurtec
Operates as a facility engineering company in Japan and internationally.
Flawless balance sheet with proven track record.
