Step Co.,Ltd.'s (TSE:9795) investors are due to receive a payment of ¥37.00 per share on 19th of December. However, the dividend yield of 3.9% is still a decent boost to shareholder returns.
See our latest analysis for StepLtd
StepLtd's Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, StepLtd was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.
Over the next year, EPS could expand by 4.6% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which is in the range that makes us comfortable with the sustainability of the dividend.
StepLtd Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. Since 2019, the dividend has gone from ¥40.00 total annually to ¥74.00. This means that it has been growing its distributions at 13% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
StepLtd May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, StepLtd has only grown its earnings per share at 4.6% per annum over the past five years. The company has been growing at a pretty soft 4.6% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
Our Thoughts On StepLtd's Dividend
Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for StepLtd that investors should take into consideration. Is StepLtd 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.
About TSE:9795
Flawless balance sheet and good value.
