Kraftia (TSE:1959) Has Announced A Dividend Of ¥90.00

The board of Kraftia Corporation (TSE:1959) has announced that it will pay a dividend of ¥90.00 per share on the 4th of June. The payment will take the dividend yield to 2.4%, which is in line with the average for the industry.

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Kraftia's Payment Could Potentially Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Kraftia's dividend was only 38% of earnings, however it was paying out 238% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 11.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Kraftia

Kraftia Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥16.00 in 2015, and the most recent fiscal year payment was ¥180.00. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 5.0% per annum over the last five years, which admittedly is a bit slow. If Kraftia is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On Kraftia's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Kraftia is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 1 warning sign for Kraftia that investors should know about before committing capital to this stock. Is Kraftia 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.