MonotaRO Co., Ltd. (TSE:3064) will increase its dividend from last year's comparable payment on the 9th of September to ¥9.00. Although the dividend is now higher, the yield is only 1.1%, which is below the industry average.
View our latest analysis for MonotaRO
MonotaRO's Payment Has 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. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 59.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from ¥1.50 total annually to ¥19.00. This works out to be a compound annual growth rate (CAGR) of approximately 29% a year over that time. MonotaRO 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. We are encouraged to see that MonotaRO has grown earnings per share at 18% 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.
MonotaRO Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that MonotaRO is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for MonotaRO 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.
About TSE:3064
MonotaRO
Operates an online MRO products store in Japan and internationally.
Flawless balance sheet with solid track record.
