Orient (TSE:8585) Has Affirmed Its Dividend Of ¥40.00

The board of Orient Corporation (TSE:8585) has announced that it will pay a dividend of ¥40.00 per share on the 26th of June. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Orient

Orient's Future Dividends May Potentially Be At Risk

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 111% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 10%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next 12 months is set to see EPS grow by 21.4%. If the dividend continues on its recent course, the payout ratio in 12 months could be 102%, which is a bit high and could start applying pressure to the balance sheet.

Orient Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of ¥20.00 in 2016 to the most recent total annual payment of ¥40.00. This means that it has been growing its distributions at 9.1% per annum over that time. Orient has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Orient's earnings per share has shrunk at 22% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Orient's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Orient's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Orient has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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