Pilot (TSE:7846) Has Announced That It Will Be Increasing Its Dividend To ¥53.00

Pilot Corporation (TSE:7846) has announced that it will be increasing its periodic dividend on the 2nd of September to ¥53.00, which will be 6.0% higher than last year's comparable payment amount of ¥50.00. This will take the dividend yield to an attractive 2.3%, providing a nice boost to shareholder returns.

See our latest analysis for Pilot

Pilot's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Pilot was paying a whopping 444% as a dividend, but this only made up 29% of its overall earnings. 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.

Unless the company can turn things around, EPS could fall by 1.3% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 37%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Pilot Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of ¥10.00 in 2014 to the most recent total annual payment of ¥100.00. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Pilot 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. Unfortunately things aren't as good as they seem. Unfortunately, Pilot's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Pilot will make a great income stock. While Pilot is earning enough to cover the payments, the cash flows are lacking. 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. Taking the debate a bit further, we've identified 1 warning sign for Pilot that investors need to be conscious of moving forward. Is Pilot not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.