Japan Investment Adviser (TSE:7172) Is Increasing Its Dividend To ¥44.00

The board of Japan Investment Adviser Co., Ltd. (TSE:7172) has announced that it will be paying its dividend of ¥44.00 on the 27th of March, an increased payment from last year's comparable dividend. This makes the dividend yield 4.7%, which is above the industry average.

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite comfortably covered by Japan Investment Adviser's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 86% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 39.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Japan Investment Adviser

Japan Investment Adviser's Dividend Has Lacked Consistency

It's comforting to see that Japan Investment Adviser has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the annual payment back then was ¥5.00, compared to the most recent full-year payment of ¥88.00. This implies that the company grew its distributions at a yearly rate of about 38% 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 May Be Hard To Come By

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 Japan Investment Adviser's EPS has declined at around 5.3% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Japan Investment Adviser will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Japan Investment Adviser has been making. We would probably look elsewhere for an income investment.

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, Japan Investment Adviser has 2 warning signs (and 1 which is concerning) 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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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.