Tess HoldingsLtd's (TSE:5074) Dividend Will Be Reduced 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. However, the dividend yield of 3.3% still remains in a typical range for the industry.

See our latest analysis for Tess HoldingsLtd

Tess HoldingsLtd's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. 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.

Looking forward, earnings per share could rise by 93.5% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

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. The dividend has shrunk at around 8.0% a year during that period. 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

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Tess HoldingsLtd has seen EPS rising for the last five years, at 93% 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. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

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. 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Tess HoldingsLtd (of which 3 make us uncomfortable!) you should know about. 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.