Tess HoldingsLtd (TSE:5074) Is Reducing Its Dividend To ¥16.00

Tess Holdings Co.,Ltd.'s (TSE:5074) dividend is being reduced from last year's payment covering the same period to ¥16.00 on the 1st of July. This means the annual payment is 3.7% of the current stock price, which is above the average for the industry.

See our latest analysis for Tess HoldingsLtd

Tess HoldingsLtd Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, Tess HoldingsLtd is earning enough to cover the payment, but then it makes 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.

Over the next year, EPS is forecast to fall by 53.9%. If the dividend continues along recent trends, we estimate the payout ratio could reach 105%, which could put the dividend in jeopardy if the company's earnings don't improve.

Tess HoldingsLtd's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. 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 the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that Tess HoldingsLtd has grown earnings per share at 93% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Tess HoldingsLtd could prove to be a strong dividend payer.

An additional note is that the company has been raising capital by issuing stock equal to 100% of shares outstanding in the last 12 months. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 are a bit unpleasant!) 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.