Lacto Japan (TSE:3139) Has Announced That It Will Be Increasing Its Dividend To ¥31.00

Lacto Japan Co., Ltd.'s (TSE:3139) dividend will be increasing from last year's payment of the same period to ¥31.00 on 26th of August. This makes the dividend yield 2.3%, which is above the industry average.

Check out our latest analysis for Lacto Japan

Lacto Japan's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Lacto Japan's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 32.4%. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

Lacto Japan Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2015, the dividend has gone from ¥15.00 total annually to ¥62.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Lacto Japan Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Lacto Japan has grown earnings per share at 6.9% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Lacto Japan's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Lacto Japan has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is Lacto Japan not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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