Kato WorksLtd (TSE:6390) Is Due To Pay A Dividend Of ¥35.00

The board of Kato Works Co.,Ltd. (TSE:6390) has announced that it will pay a dividend on the 30th of June, with investors receiving ¥35.00 per share. The dividend yield of 5.0% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Kato WorksLtd

Kato WorksLtd Might Find It Hard To Continue The Dividend

A big dividend yield for a few years doesn't mean much if it can't be sustained. Despite not generating a profit, Kato WorksLtd is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Looking forward, earnings per share could rise by 21.5% over the next year if the trend from the last few years continues. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from ¥45.00 total annually to ¥70.00. This implies that the company grew its distributions at a yearly rate of about 4.5% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

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. Kato WorksLtd has seen EPS rising for the last five years, at 21% per annum. Even though the company is not profitable, it is growing at a solid clip. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We don't think Kato WorksLtd 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. As an example, we've identified 2 warning signs for Kato WorksLtd that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.