Tanseisha (TSE:9743) Has Announced That It Will Be Increasing Its Dividend To ¥35.00

Tanseisha Co., Ltd.'s (TSE:9743) dividend will be increasing from last year's payment of the same period to ¥35.00 on 6th of October. This will take the annual payment to 5.5% of the stock price, which is above what most companies in the industry pay.

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Tanseisha's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Tanseisha's dividend was only 36% of earnings, however it was paying out 416% of free cash flows. 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.

Looking forward, earnings per share is forecast to fall by 6.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 61%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

View our latest analysis for Tanseisha

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥6.67, compared to the most recent full-year payment of ¥70.00. This works out to be a compound annual growth rate (CAGR) of approximately 27% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

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. Tanseisha has seen EPS rising for the last five years, at 7.9% per annum. 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 Tanseisha's Dividend

Overall, we always like to see the dividend being raised, but we don't think Tanseisha will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Tanseisha is a great stock to add to your portfolio if income is your focus.

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. For example, we've identified 2 warning signs for Tanseisha (1 doesn't sit too well with us!) that you should be aware of before investing. Is Tanseisha not quite the opportunity you were looking for? Why not check out our selection of top 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.