Integral (TSE:5842) Has Announced A Dividend Of ¥17.00

The board of Integral Corporation (TSE:5842) has announced that it will pay a dividend on the 25th of March, with investors receiving ¥17.00 per share. This payment takes the dividend yield to 1.0%, which only provides a modest boost to overall returns.

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Integral's Payment Could Potentially Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Integral's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS could expand by 52.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 6.1%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Integral

Integral Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The dividend has gone from an annual total of ¥24.00 in 2023 to the most recent total annual payment of ¥34.00. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Integral 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.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Integral has impressed us by growing EPS at 53% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Integral has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. 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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