Tess HoldingsLtd (TSE:5074) Has Announced That Its Dividend Will Be Reduced To ¥16.00

Tess Holdings Co.,Ltd. (TSE:5074) has announced that on 1st of July, it will be paying a dividend of¥16.00, which a reduction from last year's comparable dividend. The yield is still above the industry average at 3.9%.

View our latest analysis for Tess HoldingsLtd

Tess HoldingsLtd Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 404% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

EPS is set to fall by 53.9% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 105%, which could put the dividend under pressure if earnings don't start to improve.

Tess HoldingsLtd's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The annual payment during the last 3 years was ¥20.52 in 2021, and the most recent fiscal year payment was ¥16.00. This works out to be a decline of approximately 8.0% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. It's encouraging to see that Tess HoldingsLtd has been growing its earnings per share at 93% a year over the past five years. Tess HoldingsLtd is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We should note that Tess HoldingsLtd has issued stock equal to 100% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Tess HoldingsLtd's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Tess HoldingsLtd (of which 3 don't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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