Kyokuto Kaihatsu KogyoLtd's (TSE:7226) Shareholders Will Receive A Smaller Dividend Than Last Year

Kyokuto Kaihatsu Kogyo Co.,Ltd.'s (TSE:7226) dividend is being reduced from last year's payment covering the same period to ¥70.00 on the 4th of December. The dividend yield of 5.1% is still a nice boost to shareholder returns, despite the cut.

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Kyokuto Kaihatsu KogyoLtd's Projections Indicate Future Payments May Be Unsustainable

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Kyokuto Kaihatsu KogyoLtd was paying out 37,901% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Looking forward, EPS could fall by 69.7% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 140,151%, which is definitely a bit high to be sustainable going forward.

Check out our latest analysis for Kyokuto Kaihatsu KogyoLtd

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 2015, the annual payment back then was ¥24.00, compared to the most recent full-year payment of ¥140.00. This means that it has been growing its distributions at 19% per annum over that time. Kyokuto Kaihatsu KogyoLtd has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Kyokuto Kaihatsu KogyoLtd's earnings per share has shrunk at 70% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Kyokuto Kaihatsu KogyoLtd's Dividend Doesn't Look Great

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Kyokuto Kaihatsu KogyoLtd you should be aware of, and 2 of them are a bit concerning. 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.