Avantia (TSE:8904) Is Due To Pay A Dividend Of ¥19.00

The board of Avantia Co., Ltd. (TSE:8904) has announced that it will pay a dividend on the 12th of November, with investors receiving ¥19.00 per share. Based on this payment, the dividend yield on the company's stock will be 4.7%, which is an attractive boost to shareholder returns.

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Avantia's Projections Indicate Future Payments May Be Unsustainable

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Avantia's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

If the company can't turn things around, EPS could fall by 11.5% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 116%, which could put the dividend under pressure if earnings don't start to improve.

See our latest analysis for Avantia

Avantia Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The most recent annual payment of ¥38.00 is about the same as the annual payment 10 years ago. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Avantia's EPS has declined at around 11% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Our Thoughts On Avantia's Dividend

In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Avantia you should be aware of, and 2 of them are significant. 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.