Insource (TSE:6200) Is Paying Out A Larger Dividend Than Last Year

Insource Co., Ltd. (TSE:6200) will increase its dividend from last year's comparable payment on the 18th of December to ¥19.50. This takes the dividend yield to 1.8%, which shareholders will be pleased with.

Check out our latest analysis for Insource

Insource's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Insource was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 18.8%. If the dividend continues on this path, the payout ratio could be 56% by next year, which we think can be pretty sustainable going forward.

Insource Doesn't Have A Long Payment History

It is great to see that Insource has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2016, the annual payment back then was ¥1.30, compared to the most recent full-year payment of ¥19.50. This works out to be a compound annual growth rate (CAGR) of approximately 40% a year over that time. Insource has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Insource has grown earnings per share at 32% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Insource's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Insource that investors need to be conscious of moving forward. Is Insource not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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