First BrothersLtd (TSE:3454) Will Pay A Larger Dividend Than Last Year At ¥34.00

First Brothers Co.,Ltd.'s (TSE:3454) dividend will be increasing from last year's payment of the same period to ¥34.00 on 8th of February. This makes the dividend yield 5.9%, which is above the industry average.

Check out our latest analysis for First BrothersLtd

First BrothersLtd's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is 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. If recent patterns in the dividend continue, the payout ratio in 12 months could be 91% which is a bit high but can definitely be sustainable.

First BrothersLtd Doesn't Have A Long Payment History

First BrothersLtd's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of ¥15.00 in 2016 to the most recent total annual payment of ¥68.00. This means that it has been growing its distributions at 21% per annum 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. However, First BrothersLtd's EPS was effectively flat over the past five years, which could stop the company from paying more every year. While growth may be thin on the ground, First BrothersLtd could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Overall, we always like to see the dividend being raised, but we don't think First BrothersLtd will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 4 warning signs for First BrothersLtd (1 is a bit unpleasant!) 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.