Tokyo Century (TSE:8439) Is Paying Out A Larger Dividend Than Last Year

Tokyo Century Corporation's (TSE:8439) dividend will be increasing from last year's payment of the same period to ¥34.00 on 3rd of December. This takes the dividend yield to 4.0%, which shareholders will be pleased with.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Tokyo Century's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Tokyo Century was paying a whopping 99% as a dividend, but this only made up 31% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 7.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Tokyo Century

Tokyo Century Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from ¥14.00 total annually to ¥68.00. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

We Could See Tokyo Century's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Tokyo Century has seen EPS rising for the last five years, at 5.9% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Tokyo Century's prospects of growing its dividend payments in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Tokyo Century is earning enough to cover the payments, the cash flows are lacking. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Tokyo Century has 2 warning signs (and 1 which is a bit concerning) we think you should know about. Is Tokyo Century not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.