TSI HoldingsLtd (TSE:3608) Is Paying Out A Larger Dividend Than Last Year

TSI Holdings Co.,Ltd.'s (TSE:3608) dividend will be increasing from last year's payment of the same period to ¥65.00 on 7th of May. This takes the dividend yield to 5.3%, which shareholders will be pleased with.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that TSI HoldingsLtd's stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for TSI HoldingsLtd

TSI HoldingsLtd's Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment was quite easily covered by earnings, but it made up 473% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 43.9%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 175%, which probably can't continue without putting some pressure on the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥17.50 in 2015 to the most recent total annual payment of ¥65.00. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. 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.

Dividend Growth May Be Hard To Achieve

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. Earnings have grown at around 2.2% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 2.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On TSI HoldingsLtd's Dividend

In summary, while it's always good to see the dividend being raised, we don't think TSI HoldingsLtd's payments are rock solid. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for TSI HoldingsLtd you should be aware of, and 1 of them shouldn't be ignored. 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.