Zoom's (TSE:6694) Upcoming Dividend Will Be Larger Than Last Year's

Zoom Corporation (TSE:6694) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of March to ¥32.00. This takes the dividend yield to 5.0%, which shareholders will be pleased with.

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Zoom's Distributions May Be Difficult To Sustain

If the payments aren't sustainable, a high yield for a few years won't matter that much. While Zoom is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Over the next year, EPS might fall by 43.0% based on recent performance. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.

View our latest analysis for Zoom

Zoom's Dividend Has Lacked Consistency

Zoom has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the annual payment back then was ¥16.50, compared to the most recent full-year payment of ¥32.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.6% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Zoom might have put its house in order since then, but we remain cautious.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 43% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Zoom's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Zoom 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. We don't think Zoom is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Zoom (2 are significant!) that you should be aware of before investing. Is Zoom 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.