Food & Life Companies (TSE:3563) Is Paying Out A Dividend Of ¥22.50

The board of Food & Life Companies Ltd. (TSE:3563) has announced that it will pay a dividend of ¥22.50 per share on the 23rd of December. This means the annual payment is 1.1% of the current stock price, which is above the average for the industry.

See our latest analysis for Food & Life Companies

Food & Life Companies' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Food & Life Companies was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 13.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

Food & Life Companies' Dividend Has Lacked Consistency

It's comforting to see that Food & Life Companies has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the annual payment back then was ¥21.25, compared to the most recent full-year payment of ¥25.00. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Food & Life Companies Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Food & Life Companies has impressed us by growing EPS at 5.7% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, a consistent dividend is a good thing, and we think that Food & Life Companies has the ability to continue this into the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Food & Life Companies 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.

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