Mitsubishi HC Capital's (TSE:8593) Upcoming Dividend Will Be Larger Than Last Year's

Mitsubishi HC Capital Inc. (TSE:8593) will increase its dividend from last year's comparable payment on the 11th of December to ¥20.00. This will take the dividend yield to an attractive 3.9%, providing a nice boost to shareholder returns.

Check out our latest analysis for Mitsubishi HC Capital

Mitsubishi HC Capital's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Mitsubishi HC Capital's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 8.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 46% by next year, which is in a pretty sustainable range.

Mitsubishi HC Capital Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from ¥6.70 total annually to ¥40.00. This means that it has been growing its distributions at 20% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 2.6% per annum over the last five years, which admittedly is a bit slow. Growth of 2.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

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 don't think Mitsubishi HC Capital is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Mitsubishi HC Capital you should be aware of, and 1 of them makes us a bit uncomfortable. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.