Wellnet's (TSE:2428) Dividend Will Be Increased To ¥21.00

The board of Wellnet Corporation (TSE:2428) has announced that it will be paying its dividend of ¥21.00 on the 22nd of September, an increased payment from last year's comparable dividend. This makes the dividend yield 3.8%, which is above the industry average.

See our latest analysis for Wellnet

Wellnet's Payment Has Solid Earnings Coverage

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.

Looking forward, earnings per share could rise by 4.2% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of ¥11.00 in 2014 to the most recent total annual payment of ¥21.00. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings have grown at around 4.2% a year for the past five years, which isn't massive but still better than seeing them shrink. Wellnet is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Wellnet's Dividend

Overall, we always like to see the dividend being raised, but we don't think Wellnet will make a great income stock. While Wellnet is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 2 warning signs for Wellnet that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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