Japan Investment Adviser's (TSE:7172) Dividend Will Be ¥12.00

Japan Investment Adviser Co., Ltd. (TSE:7172) will pay a dividend of ¥12.00 on the 27th of March. This payment takes the dividend yield to 2.2%, which only provides a modest boost to overall returns.

Check out our latest analysis for Japan Investment Adviser

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

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Japan Investment Adviser was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 54.0% over the next year. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.

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. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was ¥5.00 in 2015, and the most recent fiscal year payment was ¥24.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Potential Is Shaky

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. Over the past five years, it looks as though Japan Investment Adviser's EPS has declined at around 15% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. 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.

An additional note is that the company has been raising capital by issuing stock equal to 100% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Japan Investment Adviser's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Japan Investment Adviser is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Japan Investment Adviser you should be aware of, and 2 of them are a bit unpleasant. 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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