Lacto Japan's (TSE:3139) Shareholders Will Receive A Bigger 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 will take the dividend yield to an attractive 2.7%, providing a nice boost to shareholder returns.

Check out our latest analysis for Lacto Japan

Lacto Japan's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Lacto Japan's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 5.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 26% by next year, which is in a pretty sustainable range.

Lacto Japan Is Still Building Its Track Record

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. The annual payment during the last 9 years was ¥15.00 in 2015, and the most recent fiscal year payment was ¥76.00. This works out to be a compound annual growth rate (CAGR) of approximately 20% 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

The company's investors will be pleased to have been receiving dividend income for some time. Lacto Japan has seen EPS rising for the last five years, at 9.4% per annum. 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.

Lacto Japan Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

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. Case in point: We've spotted 2 warning signs for Lacto Japan (of which 1 doesn't sit too well with us!) 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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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.