Mitsubishi HC Capital (TSE:8593) Is Paying Out A Larger Dividend Than Last Year

The board of Mitsubishi HC Capital Inc. (TSE:8593) has announced that it will be paying its dividend of ¥19.00 on the 10th of June, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 3.5%, which is in line with the average for the industry.

See our latest analysis for Mitsubishi HC Capital

Mitsubishi HC Capital's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Mitsubishi HC Capital's dividend was only 47% of earnings, however it was paying out 120% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 47.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

Mitsubishi HC Capital Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was ¥6.70, compared to the most recent full-year payment of ¥38.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Unfortunately, Mitsubishi HC Capital's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Mitsubishi HC Capital's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Mitsubishi HC Capital is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Mitsubishi HC Capital you should be aware of, and 1 of them is concerning. 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.