MEITEC Group Holdings' (TSE:9744) Dividend Will Be Increased To ¥88.00

MEITEC Group Holdings Inc. (TSE:9744) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of December to ¥88.00. This will take the dividend yield to an attractive 4.9%, providing a nice boost to shareholder returns.

View our latest analysis for MEITEC Group Holdings

MEITEC Group Holdings Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite comfortably covered by MEITEC Group Holdings' earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 85% indicates it is more focused on returning cash to shareholders than growing the business.

The next 12 months is set to see EPS grow by 3.9%. If the dividend continues on its recent course, the payout ratio in 12 months could be 101%, which is a bit high and could start applying pressure to the balance sheet.

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 ¥24.00 in 2014 to the most recent total annual payment of ¥158.00. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. MEITEC Group Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

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. MEITEC Group Holdings has impressed us by growing EPS at 11% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While MEITEC Group Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. 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. Taking the debate a bit further, we've identified 1 warning sign for MEITEC Group Holdings that investors need to be conscious of moving forward. Is MEITEC Group Holdings 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.