TOBA's (TSE:7472) Dividend Will Be Increased To ¥130.00

TOBA, INC.'s (TSE:7472) dividend will be increasing from last year's payment of the same period to ¥130.00 on 24th of June. This makes the dividend yield 3.7%, which is above the industry average.

Check out our latest analysis for TOBA

TOBA's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment was quite easily covered by earnings, but it made up 225% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 0.05% over the next 12 months. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.

TOBA's Dividend Has Lacked Consistency

It's comforting to see that TOBA has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of ¥60.00 in 2015 to the most recent total annual payment of ¥130.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.0% 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.

TOBA May Find It Hard To Grow 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. Unfortunately, TOBA's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Growth of 0.05% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On TOBA's Dividend

In summary, while it's always good to see the dividend being raised, we don't think TOBA's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. As an example, we've identified 2 warning signs for TOBA that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.