Marumae (TSE:6264) Will Pay A Larger Dividend Than Last Year At ¥20.00

Marumae Co., Ltd.'s (TSE:6264) dividend will be increasing from last year's payment of the same period to ¥20.00 on 25th of November. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

View our latest analysis for Marumae

Marumae's Distributions May Be Difficult To Sustain

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. While Marumae is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share is forecast to expand by 89.9% over the next year. It's encouraging to see things moving in the right direction, but this probably won't be enough for the company to turn a profit. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.

Marumae'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. Since 2021, the dividend has gone from ¥22.00 total annually to ¥30.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Company Could Face Some Challenges Growing The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Marumae has seen EPS rising for the last five years, at 12% per annum. It's not great that the company is not turning a profit, but the decent growth in recent years is certainly a positive sign. Assuming the company can post positive net income numbers soon, it could has the potential to be a decent dividend payer.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Marumae 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Marumae that investors need to be conscious of moving forward. Is Marumae 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.