Marui Group's (TSE:8252) Upcoming Dividend Will Be Larger Than Last Year's

The board of Marui Group Co., Ltd. (TSE:8252) has announced that it will be paying its dividend of ¥53.00 on the 6th of December, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 4.5%, providing a nice boost to shareholder returns.

Check out our latest analysis for Marui Group

Marui Group's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Marui Group was paying out 77% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Earnings per share is forecast to rise by 7.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from ¥18.00 total annually to ¥106.00. This works out to be a compound annual growth rate (CAGR) of approximately 19% a year over that time. Marui Group 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 Achieve

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. Earnings has been rising at 2.6% per annum over the last five years, which admittedly is a bit slow. Marui Group's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Marui Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Marui Group's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

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. Just as an example, we've come across 2 warning signs for Marui Group you should be aware of, and 1 of them makes us a bit uncomfortable. Is Marui 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.

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