FJ Next Holdings (TSE:8935) Will Pay A Dividend Of ¥24.00

FJ Next Holdings Co., Ltd. (TSE:8935) has announced that it will pay a dividend of ¥24.00 per share on the 4th of December. Based on this payment, the dividend yield on the company's stock will be 3.9%, which is an attractive boost to shareholder returns.

Check out our latest analysis for FJ Next Holdings

FJ Next Holdings' Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, FJ Next Holdings was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 1.7% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 30%, which is definitely feasible to continue.

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 dividend has gone from an annual total of ¥16.00 in 2014 to the most recent total annual payment of ¥48.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. FJ Next Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

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. FJ Next Holdings hasn't seen much change in its earnings per share over the last five years.

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 is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, FJ Next Holdings has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is FJ Next Holdings 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.