Fast Fitness Japan (TSE:7092) Will Pay A Dividend Of ¥25.00

The board of Fast Fitness Japan Incorporated (TSE:7092) has announced that it will pay a dividend on the 27th of June, with investors receiving ¥25.00 per share. The dividend yield of 2.9% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Fast Fitness Japan

Fast Fitness Japan's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Fast Fitness Japan's dividend was only 60% of earnings, however it was paying out 112% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 14.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which is in the range that makes us comfortable with the sustainability of the dividend.

Fast Fitness Japan's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The annual payment during the last 4 years was ¥12.82 in 2021, and the most recent fiscal year payment was ¥45.00. This means that it has been growing its distributions at 37% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Fast Fitness Japan's earnings per share has shrunk at approximately 4.2% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

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 Fast Fitness Japan that investors need to be conscious of moving forward. Is Fast Fitness Japan not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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