Ki-Star Real EstateLtd (TSE:3465) Will Pay A Smaller Dividend Than Last Year

Ki-Star Real Estate Co.,Ltd's (TSE:3465) dividend is being reduced from last year's payment covering the same period to ¥62.00 on the 27th of June. The dividend yield of 5.1% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Ki-Star Real EstateLtd

Ki-Star Real EstateLtd's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Ki-Star Real EstateLtd was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 1.7% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 47%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Ki-Star Real EstateLtd's Dividend Has Lacked Consistency

It's comforting to see that Ki-Star Real EstateLtd has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from ¥42.50 total annually to ¥180.00. This works out to be a compound annual growth rate (CAGR) of approximately 20% 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.

The Dividend Looks Likely To Grow

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. Ki-Star Real EstateLtd has impressed us by growing EPS at 13% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Ki-Star Real EstateLtd's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Ki-Star Real EstateLtd is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Case in point: We've spotted 4 warning signs for Ki-Star Real EstateLtd (of which 2 are a bit unpleasant!) you should know about. Is Ki-Star Real EstateLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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