First BrothersLtd's (TSE:3454) Upcoming Dividend Will Be Larger Than Last Year's

First Brothers Co.,Ltd. (TSE:3454) will increase its dividend from last year's comparable payment on the 9th of February to ¥35.00. This takes the annual payment to 3.2% of the current stock price, which is about average for the industry.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

First BrothersLtd's Payment Could Potentially Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, First BrothersLtd was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 6.8% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 43%, which is definitely feasible to continue.

See our latest analysis for First BrothersLtd

First BrothersLtd's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of ¥15.00 in 2016 to the most recent total annual payment of ¥35.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.9% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Is Doubtful

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. Over the past five years, it looks as though First BrothersLtd's EPS has declined at around 6.8% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

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. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, First BrothersLtd has 3 warning signs (and 2 which are a bit concerning) we think you should know about. Is First BrothersLtd not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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

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.