Tess HoldingsLtd (TSE:5074) Is Paying Out Less In Dividends Than Last Year

Tess Holdings Co.,Ltd. (TSE:5074) is reducing its dividend from last year's comparable payment to ¥16.00 on the 1st of July. However, the dividend yield of 3.8% is still a decent boost to shareholder returns.

View our latest analysis for Tess HoldingsLtd

Tess HoldingsLtd's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, Tess HoldingsLtd is earning enough to cover the payment, but then it makes up 404% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

EPS is set to fall by 55.4% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 85%, which is definitely on the higher side.

Tess HoldingsLtd's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The dividend has gone from an annual total of ¥20.52 in 2021 to the most recent total annual payment of ¥16.00. Doing the maths, this is a decline of about 8.0% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Tess HoldingsLtd has seen EPS rising for the last five years, at 103% per annum. 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

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Tess HoldingsLtd has 5 warning signs (and 3 which are significant) we think you should know about. Is Tess HoldingsLtd 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.