Cosel (TSE:6905) Is Paying Out A Larger Dividend Than Last Year

Cosel Co., Ltd. (TSE:6905) will increase its dividend from last year's comparable payment on the 22nd of July to ¥28.00. This will take the dividend yield to an attractive 5.6%, providing a nice boost to shareholder returns.

Check out our latest analysis for Cosel

Cosel's Future Dividends May Potentially Be At Risk

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Cosel's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Over the next year, EPS is forecast to expand by 17.5%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 106% over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ¥23.00 in 2015 to the most recent total annual payment of ¥56.00. This implies that the company grew its distributions at a yearly rate of about 9.3% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Cosel has grown earnings per share at 19% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

We should note that Cosel has issued stock equal to 24% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Cosel's Dividend

Overall, we always like to see the dividend being raised, but we don't think Cosel will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 3 warning signs for Cosel that investors need to be conscious of moving forward. Is Cosel 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.