Lacto Japan (TSE:3139) Is Paying Out A Larger Dividend Than Last Year

Lacto Japan Co., Ltd. (TSE:3139) will increase its dividend from last year's comparable payment on the 28th of February to ¥45.00. This makes the dividend yield 2.2%, which is above the industry average.

Check out our latest analysis for Lacto Japan

Lacto Japan's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Lacto Japan's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 11.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

Lacto Japan Is Still Building Its Track Record

Lacto Japan's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2015, the annual payment back then was ¥15.00, compared to the most recent full-year payment of ¥62.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Lacto Japan has been growing its earnings per share at 6.9% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Lacto Japan's prospects of growing its dividend payments in the future.

Our Thoughts On Lacto Japan's Dividend

In summary, it's great to see that the company can raise the dividend and keep it 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. However, there are other things to consider for investors when analysing stock performance. To that end, Lacto Japan has 2 warning signs (and 1 which is concerning) we think you should know about. 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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