Gakujo (TSE:2301) Has Announced A Dividend Of ¥34.00

The board of Gakujo Co., Ltd. (TSE:2301) has announced that it will pay a dividend of ¥34.00 per share on the 27th of January. This means the annual payment is 3.7% of the current stock price, which is above the average for the industry.

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Gakujo's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Gakujo's dividend was only 45% of earnings, however it was paying out 96% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

The next year is set to see EPS grow by 11.8%. If the dividend continues on this path, the payout ratio could be 41% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Gakujo

Gakujo Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of ¥32.00 in 2017 to the most recent total annual payment of ¥67.00. This implies that the company grew its distributions at a yearly rate of about 9.7% over that duration. Gakujo has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

Gakujo May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 3.3% per annum over the last five years, which admittedly is a bit slow. Gakujo is struggling to find viable investments, so it is returning more to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

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 the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Gakujo that you should be aware of before investing. Is Gakujo not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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