First BrothersLtd (TSE:3454) Is Increasing Its Dividend To ¥34.00

First Brothers Co.,Ltd. (TSE:3454) will increase its dividend from last year's comparable payment on the 8th of February to ¥34.00. This takes the dividend yield to 5.7%, which shareholders will be pleased with.

Check out our latest analysis for First BrothersLtd

First BrothersLtd's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, First BrothersLtd's earnings easily covered the dividend, but free cash flows were negative. 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.

EPS is set to grow by 0.9% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 91%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

First BrothersLtd Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of ¥15.00 in 2016 to the most recent total annual payment of ¥68.00. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. First BrothersLtd has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Although it's important to note that First BrothersLtd's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. If First BrothersLtd is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

Our Thoughts On First BrothersLtd's Dividend

Overall, we always like to see the dividend being raised, but we don't think First BrothersLtd 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for First BrothersLtd (1 doesn't sit too well with us!) that you should be aware of before investing. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com