SALA (TSE:2734) Will Pay A Dividend Of ¥16.00

The board of SALA Corporation (TSE:2734) has announced that it will pay a dividend on the 31st of July, with investors receiving ¥16.00 per share. This takes the annual payment to 3.5% of the current stock price, which is about average for the industry.

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SALA's Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, SALA was paying only paying out a fraction of earnings, but the payment was a massive 339% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS could expand by 0.5% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for SALA

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from ¥12.00 total annually to ¥32.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. SALA has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

SALA May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, SALA's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think SALA is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for SALA (1 shouldn't be ignored!) that you should be aware of before investing. 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.