Takara StandardLtd's (TSE:7981) Upcoming Dividend Will Be Larger Than Last Year's

Takara Standard Co.,Ltd.'s (TSE:7981) dividend will be increasing from last year's payment of the same period to ¥28.00 on 2nd of December. This will take the annual payment to 3.3% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Takara StandardLtd

Takara StandardLtd's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Takara StandardLtd was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 4.1% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, 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 ¥26.00 total annually to ¥56.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% 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.

Dividend Growth May Be Hard To Achieve

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. However, Takara StandardLtd has only grown its earnings per share at 4.1% per annum over the past five years. Growth of 4.1% 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 Takara StandardLtd's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Takara StandardLtd (1 doesn't sit too well with us!) that you should be aware of before investing. Is Takara StandardLtd 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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