The board of J Trust Co., Ltd. (TSE:8508) has announced that it will be paying its dividend of ¥14.00 on the 27th of March, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 3.2%, which is fairly typical for the industry.
Check out our latest analysis for J Trust
J Trust's Projected Earnings Seem Likely To Cover Future Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. Generally, we think that this would be a risky long term practice.
The next year is set to see EPS grow by 36.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ¥10.00 in 2014 to the most recent total annual payment of ¥14.00. This means that it has been growing its distributions at 3.4% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Dividend Growth Could Be Constrained
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. J Trust has seen EPS rising for the last five years, at 64% per annum. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why J Trust is not retaining those earnings to reinvest in growth.
J Trust's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think J Trust's payments are rock solid. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for J Trust you should be aware of, and 1 of them can't be ignored. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
About TSE:8508
Reasonable growth potential with adequate balance sheet.
