Funai Soken Holdings' (TSE:9757) Shareholders Will Receive A Bigger Dividend Than Last Year

Funai Soken Holdings Incorporated (TSE:9757) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of March to ¥43.00. This makes the dividend yield 3.4%, which is above the industry average.

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Funai Soken Holdings' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Funai Soken Holdings' dividend made up quite a large proportion of earnings but only 54% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to grow by 17.7% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 81% which is a bit high but can definitely be sustainable.

View our latest analysis for Funai Soken Holdings

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ¥18.89 in 2015 to the most recent total annual payment of ¥86.00. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Funai Soken Holdings Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Funai Soken Holdings has seen EPS rising for the last five years, at 6.6% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Funai Soken Holdings will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Funai Soken Holdings that investors should take into consideration. 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.