SpaceLtd's (TSE:9622) Upcoming Dividend Will Be Larger Than Last Year's

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 3.8%, providing a nice boost to shareholder returns.

Check out our latest analysis for SpaceLtd

SpaceLtd's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last dividend, SpaceLtd is earning enough to cover the payment, but then it makes up 133% of 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.

Over the next year, EPS could expand by 1.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.

SpaceLtd's Dividend Has Lacked Consistency

Looking back, SpaceLtd's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the annual payment back then was ¥54.00, compared to the most recent full-year payment of ¥40.00. This works out to be a decline of approximately 5.8% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Although it's important to note that SpaceLtd's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. The company has been growing at a pretty soft 1.0% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

Overall, we always like to see the dividend being raised, but we don't think SpaceLtd will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for SpaceLtd that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.