Daiichi Jitsugyo (TSE:8059) Will Pay A Smaller Dividend Than Last Year

Daiichi Jitsugyo Co., Ltd. (TSE:8059) is reducing its dividend from last year's comparable payment to ¥36.00 on the 26th of June. The dividend yield of 3.3% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Daiichi Jitsugyo

Daiichi Jitsugyo's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Daiichi Jitsugyo's dividend was only 29% of earnings, however it was paying out 171% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 14.3% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥25.00 in 2014 to the most recent total annual payment of ¥77.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

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. Daiichi Jitsugyo has impressed us by growing EPS at 14% per year over the past five years. Daiichi Jitsugyo definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Daiichi Jitsugyo's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Daiichi Jitsugyo is earning enough to cover the payments, the cash flows are lacking. We don't think Daiichi Jitsugyo is a great stock to add to your portfolio if income is your focus.

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 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.