Obara Group (TSE:6877) Is Paying Out A Dividend Of ¥90.00

Obara Group Incorporated (TSE:6877) will pay a dividend of ¥90.00 on the 20th of December. This makes the dividend yield 3.8%, which will augment investor returns quite nicely.

Check out our latest analysis for Obara Group

Obara Group's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Obara Group's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 12.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 ¥20.00 total annually to ¥150.00. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Obara Group's earnings per share has fallen at approximately 3.2% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Obara Group that investors need to be conscious of moving forward. Is Obara Group 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.

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