Cleanup (TSE:7955) Will Pay A Dividend Of ¥18.00

Cleanup Corporation (TSE:7955) will pay a dividend of ¥18.00 on the 29th of June. This means the annual payment is 3.9% of the current stock price, which is above the average for the industry.

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Cleanup's Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Cleanup was paying only paying out a fraction of earnings, but the payment was a massive 107% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, EPS could fall by 2.5% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could be 48%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Check out our latest analysis for Cleanup

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥20.00 in 2015, and the most recent fiscal year payment was ¥31.00. This means that it has been growing its distributions at 4.5% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Cleanup's EPS has declined at around 2.5% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Cleanup's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Cleanup's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Cleanup that you should be aware of before investing. Is Cleanup 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.