Kitagawa's (TSE:6317) Upcoming Dividend Will Be Larger Than Last Year's

Kitagawa Corporation's (TSE:6317) dividend will be increasing from last year's payment of the same period to ¥43.00 on 23rd of June. This will take the annual payment to 4.9% of the stock price, which is above what most companies in the industry pay.

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Kitagawa's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Kitagawa's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 37.9% if recent trends continue. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Kitagawa

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was ¥50.00, compared to the most recent full-year payment of ¥86.00. This means that it has been growing its distributions at 5.6% per annum 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. Kitagawa might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

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 Kitagawa has grown earnings per share at 38% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Kitagawa Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Kitagawa that investors should take into consideration. Is Kitagawa 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.