Alinco's (TSE:5933) Dividend Will Be Increased To ¥22.00

Alinco Incorporated (TSE:5933) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of May to ¥22.00. This will take the annual payment to 4.4% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Alinco

Alinco's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Alinco's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, EPS could fall by 6.7% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 60%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Alinco Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from ¥34.00 total annually to ¥44.00. This works out to be a compound annual growth rate (CAGR) of approximately 2.6% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Over the past five years, it looks as though Alinco's EPS has declined at around 6.7% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Our Thoughts On Alinco's Dividend

Overall, we always like to see the dividend being raised, but we don't think Alinco will make a great income stock. 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.

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. For example, we've identified 4 warning signs for Alinco (2 are a bit unpleasant!) that you should be aware of before investing. Is Alinco 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.