Japan Investment Adviser (TSE:7172) Is Increasing Its Dividend To ¥43.00

Japan Investment Adviser Co., Ltd. (TSE:7172) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of September to ¥43.00. This will take the annual payment to 5.3% of the stock price, which is above what most companies in the industry pay.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Japan Investment Adviser's stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Our free stock report includes 3 warning signs investors should be aware of before investing in Japan Investment Adviser. Read for free now.

Japan Investment Adviser's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Japan Investment Adviser is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 36.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Japan Investment Adviser

Japan Investment Adviser's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was ¥5.00 in 2016, and the most recent fiscal year payment was ¥87.00. This implies that the company grew its distributions at a yearly rate of about 37% over that duration. Japan Investment Adviser has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Is Doubtful

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, Japan Investment Adviser's earnings per share has shrunk at approximately 8.3% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Japan Investment Adviser's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Japan Investment Adviser is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Japan Investment Adviser has 3 warning signs (and 2 which make us uncomfortable) we think you should know about. Is Japan Investment Adviser not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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