Ohba Co., Ltd. (TSE:9765) has announced that it will pay a dividend of ¥20.00 per share on the 3rd of February. This will take the dividend yield to an attractive 4.0%, providing a nice boost to shareholder returns.
See our latest analysis for Ohba
Ohba's Payment Could Potentially Have Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Ohba's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Looking forward, EPS could fall by 3.4% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 55%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Ohba Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was ¥7.00 in 2014, and the most recent fiscal year payment was ¥40.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Ohba May Find It Hard To Grow The Dividend
Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Ohba's earnings per share has fallen at approximately 3.4% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
Our Thoughts On Ohba's Dividend
Overall, we always like to see the dividend being raised, but we don't think Ohba will make a great income stock. 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. Case in point: We've spotted 3 warning signs for Ohba (of which 2 shouldn't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
New: AI Stock Screener & Alerts
Our new AI Stock Screener scans the market every day to uncover opportunities.
• Dividend Powerhouses (3%+ Yield)
• Undervalued Small Caps with Insider Buying
• High growth Tech and AI Companies
Or build your own from over 50 metrics.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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:9765
Flawless balance sheet established dividend payer.
