Daiwa Securities Group's (TSE:8601) Dividend Will Be ¥28.00

The board of Daiwa Securities Group Inc. (TSE:8601) has announced that it will pay a dividend on the 2nd of June, with investors receiving ¥28.00 per share. This will take the annual payment to 4.2% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Daiwa Securities Group

Daiwa Securities Group'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, Daiwa Securities Group'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.

EPS is set to fall by 1.7% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 50%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥34.00 in 2015, and the most recent fiscal year payment was ¥44.00. This implies that the company grew its distributions at a yearly rate of about 2.6% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Daiwa Securities Group has grown earnings per share at 24% per year over the past five years. Daiwa Securities Group is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Daiwa Securities Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Daiwa Securities Group will make a great income stock. While Daiwa Securities Group 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Daiwa Securities Group has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Daiwa Securities Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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