RhythmLtd (TSE:7769) Is Due To Pay A Dividend Of ¥48.50

The board of Rhythm Co.,Ltd. (TSE:7769) has announced that it will pay a dividend on the 24th of June, with investors receiving ¥48.50 per share. This means the annual payment will be 1.2% of the current stock price, which is lower than the industry average.

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 RhythmLtd's stock price has increased by 56% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for RhythmLtd

RhythmLtd Doesn't Earn Enough To Cover Its Payments

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, the company was paying out 445% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 46%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS could expand by 39.8% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 329%, which is a bit high and could start applying pressure to the balance sheet.

RhythmLtd Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from ¥30.00 total annually to ¥48.50. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

RhythmLtd Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that RhythmLtd has grown earnings per share at 40% per year over the past five years. Although earnings per share is up nicely RhythmLtd is paying out 445% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for RhythmLtd 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.