Create SD Holdings (TSE:3148) Has Announced A Dividend Of ¥34.00

The board of Create SD Holdings Co., Ltd. (TSE:3148) has announced that it will pay a dividend on the 5th of February, with investors receiving ¥34.00 per share. This will take the annual payment to 2.2% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Create SD Holdings

Create SD Holdings' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, Create SD Holdings was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 84% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Looking forward, earnings per share could rise by 6.6% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was ¥19.33, compared to the most recent full-year payment of ¥68.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Create SD 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.

We Could See Create SD Holdings' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Create SD Holdings has seen EPS rising for the last five years, at 6.6% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Create SD Holdings' payments are rock solid. While Create SD Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Create SD Holdings that you should be aware of before investing. 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.