SpaceLtd's (TSE:9622) Dividend Will Be Increased To ¥25.00

Space Co.,Ltd. (TSE:9622) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of March to ¥25.00. This will take the dividend yield to an attractive 3.4%, providing a nice boost to shareholder returns.

View our latest analysis for SpaceLtd

SpaceLtd's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, SpaceLtd was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 79% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Over the next year, EPS could expand by 6.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

SpaceLtd's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of ¥54.00 in 2019 to the most recent total annual payment of ¥40.00. This works out to be a decline of approximately 5.8% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

We Could See SpaceLtd's Dividend Growing

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. We are encouraged to see that SpaceLtd has grown earnings per share at 6.0% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On SpaceLtd's Dividend

Overall, we always like to see the dividend being raised, but we don't think SpaceLtd will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for SpaceLtd that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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