Hurxley Corporation (TSE:7561) will increase its dividend from last year's comparable payment on the 2nd of December to ¥14.00. This takes the dividend yield to 4.6%, which shareholders will be pleased with.
Hurxley'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. Based on the last payment, Hurxley was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
The next year is set to see EPS grow by 30.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 32%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for Hurxley
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was ¥16.50, compared to the most recent full-year payment of ¥28.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.4% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Hurxley might have put its house in order since then, but we remain cautious.
Dividend Growth May Be Hard To Achieve
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Hurxley hasn't seen much change in its earnings per share over the last five years.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Hurxley will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
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. Just as an example, we've come across 3 warning signs for Hurxley you should be aware of, and 1 of them is potentially serious. 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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