Premium Group (TSE:7199) Is Increasing Its Dividend To ¥20.00

Premium Group Co., Ltd. (TSE:7199) will increase its dividend from last year's comparable payment on the 9th of December to ¥20.00. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.

View our latest analysis for Premium Group

Premium Group's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Premium Group was paying a whopping 711% as a dividend, but this only made up 22% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 19.0%. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.

Premium Group Doesn't Have A Long Payment History

It is great to see that Premium Group has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2018, the dividend has gone from ¥14.17 total annually to ¥40.00. This means that it has been growing its distributions at 19% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Premium Group has seen EPS rising for the last five years, at 12% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Premium Group will make a great income stock. While Premium Group is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

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. Case in point: We've spotted 2 warning signs for Premium Group (of which 1 doesn't sit too well with us!) you should know about. Is Premium Group not quite the opportunity you were looking for? Why not check out our selection of top 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.