Kato WorksLtd's (TSE:6390) Dividend Will Be ¥35.00

Kato Works Co.,Ltd. (TSE:6390) has announced that it will pay a dividend of ¥35.00 per share on the 11th of December. This will take the dividend yield to an attractive 8.7%, providing a nice boost to shareholder returns.

See our latest analysis for Kato WorksLtd

Kato WorksLtd's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Kato WorksLtd was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 6.9% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥45.00 in 2014, and the most recent fiscal year payment was ¥90.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See Kato WorksLtd's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Kato WorksLtd has seen EPS rising for the last five years, at 6.9% per annum. Kato WorksLtd definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Kato WorksLtd's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Kato WorksLtd's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 4 warning signs for Kato WorksLtd that you should be aware of before investing. Is Kato WorksLtd 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.