Pegasus Co., Ltd. (TSE:6262) has announced that it will pay a dividend of ¥5.00 per share on the 27th of November. This means the dividend yield will be fairly typical at 2.3%.
View our latest analysis for Pegasus
Pegasus' Distributions May Be Difficult To Sustain
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Even in the absence of profits, Pegasus is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
Looking forward, earnings per share is forecast to rise by 51.9% over the next year. This is the right direction to be moving, but it is not enough to achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ¥6.00 in 2014 to the most recent total annual payment of ¥13.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Pegasus might have put its house in order since then, but we remain cautious.
The Company Could Face Some Challenges Growing The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Pegasus has grown earnings per share at 17% per year over the past five years. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. Assuming the company can post positive net income numbers soon, it could has the potential to be a decent dividend payer.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Pegasus' payments, as there could be some issues with sustaining them into the future. Strong earnings growth means Pegasus has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Pegasus is a great stock to add to your portfolio if income is your focus.
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 2 warning signs for Pegasus (of which 1 is a bit concerning!) 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.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
About TSE:6262
Undervalued with excellent balance sheet.
