Daiichi Jitsugyo Co., Ltd. (TSE:8059) has announced that it will pay a dividend of ¥44.00 per share on the 26th of June. However, the dividend yield of 3.2% still remains in a typical range for the industry.
Check out our latest analysis for Daiichi Jitsugyo
Daiichi Jitsugyo's Future Dividend Projections Appear Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Daiichi Jitsugyo was paying a whopping 171% as a dividend, but this only made up 26% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
If the trend of the last few years continues, EPS will grow by 17.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥26.67 in 2015, and the most recent fiscal year payment was ¥77.00. This means that it has been growing its distributions at 11% per annum over that time. Daiichi Jitsugyo 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 Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Daiichi Jitsugyo has been growing its earnings per share at 18% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
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. As an example, we've identified 1 warning sign for Daiichi Jitsugyo 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.
About TSE:8059
Flawless balance sheet with solid track record.
