MonotaRO (TSE:3064) Is Increasing Its Dividend To ¥15.00

The board of MonotaRO Co., Ltd. (TSE:3064) has announced that it will be paying its dividend of ¥15.00 on the 9th of September, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 1.1%.

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MonotaRO's Payment Could Potentially Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, MonotaRO's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 15.0%. If the dividend continues on this path, the payout ratio could be 49% by next year, which we think can be pretty sustainable going forward.

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Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥1.75, compared to the most recent full-year payment of ¥31.00. This works out to be a compound annual growth rate (CAGR) of approximately 33% a year over that time. 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 Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. MonotaRO has impressed us by growing EPS at 19% per year over the past five years. MonotaRO definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like MonotaRO's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 10 MonotaRO analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.