METAWATER (TSE:9551) Is Paying Out A Larger Dividend Than Last Year

The board of METAWATER Co., Ltd. (TSE:9551) has announced that it will be increasing its dividend by 9.1% on the 3rd of June to ¥24.00, up from last year's comparable payment of ¥22.00. The payment will take the dividend yield to 1.9%, which is in line with the average for the industry.

Check out our latest analysis for METAWATER

METAWATER's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, METAWATER's earnings easily covered the dividend, but free cash flows were negative. 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.

Over the next year, EPS is forecast to expand by 12.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.

METAWATER Is Still Building Its Track Record

METAWATER's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2015, the annual payment back then was ¥29.00, compared to the most recent full-year payment of ¥44.00. This means that it has been growing its distributions at 4.7% per annum over that time. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. METAWATER has seen EPS rising for the last five years, at 11% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for METAWATER's prospects of growing its dividend payments in the future.

Our Thoughts On METAWATER's Dividend

In summary, while it's always good to see the dividend being raised, we don't think METAWATER'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 be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for METAWATER that investors need to be conscious of moving forward. 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.