HeiwadoLtd's (TSE:8276) Shareholders Will Receive A Bigger Dividend Than Last Year

Heiwado Co.,Ltd. (TSE:8276) will increase its dividend from last year's comparable payment on the 1st of November to ¥30.00. This takes the dividend yield to 2.7%, which shareholders will be pleased with.

Check out our latest analysis for HeiwadoLtd

HeiwadoLtd's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, HeiwadoLtd 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 returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Looking forward, earnings per share is forecast to rise by 44.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.

HeiwadoLtd Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the dividend has gone from ¥27.00 total annually to ¥60.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.3% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. It's not great to see that HeiwadoLtd's earnings per share has fallen at approximately 4.3% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On HeiwadoLtd's Dividend

In summary, while it's always good to see the dividend being raised, we don't think HeiwadoLtd's payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for HeiwadoLtd that investors need to be conscious of moving forward. Is HeiwadoLtd 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.

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