Premium Group Co., Ltd.'s (TSE:7199) investors are due to receive a payment of ¥13.00 per share on 10th of June. Even though the dividend went up, the yield is still quite low at only 1.5%.
View our latest analysis for Premium Group
Premium Group's Payment Has Solid Earnings Coverage
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, Premium Group's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
The next year is set to see EPS grow by 26.0%. If the dividend continues on this path, the payout ratio could be 22% by next year, which we think can be pretty sustainable going forward.
Premium Group Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 6 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 6 years was ¥14.17 in 2018, and the most recent fiscal year payment was ¥26.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Premium Group has grown earnings per share at 27% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
Our Thoughts On Premium Group's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Premium Group 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Premium Group (2 are a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About TSE:7199
Solid track record with reasonable growth potential.
