Central Security Patrols (TSE:9740) Is Due To Pay A Dividend Of ¥30.00

Central Security Patrols Co., Ltd.'s (TSE:9740) investors are due to receive a payment of ¥30.00 per share on 7th of November. The dividend yield will be 2.6% based on this payment which is still above the industry average.

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Central Security Patrols' Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Central Security Patrols was paying a whopping 1,499% as a dividend, but this only made up 27% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to fall by 3.2%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 30%, which is comfortable for the company to continue in the future.

Check out our latest analysis for Central Security Patrols

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ¥28.00 in 2015 to the most recent total annual payment of ¥60.00. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 2.5% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, Central Security Patrols has the option to increase the payout ratio to return more cash to shareholders.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Central Security Patrols has 3 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.