Wellnet (TSE:2428) Is Increasing Its Dividend To ¥21.00

Wellnet Corporation's (TSE:2428) dividend will be increasing from last year's payment of the same period to ¥21.00 on 22nd of September. This will take the dividend yield to an attractive 3.8%, providing a nice boost to shareholder returns.

View our latest analysis for Wellnet

Wellnet's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Wellnet was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 4.2% over the next 12 months. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from ¥11.00 total annually to ¥21.00. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 4.2% per year. Wellnet is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Wellnet's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Wellnet is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Wellnet that investors should know about before committing capital to this stock. 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.