SALA's (TSE:2734) Dividend Will Be ¥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. The payment will take the dividend yield to 3.7%, which is in line with the average for the industry.

Check out our latest analysis for SALA

SALA's Payment Could Potentially Have Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, SALA was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 1.0% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥12.00 in 2015, and the most recent fiscal year payment was ¥32.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

SALA May Find It Hard To Grow The Dividend

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. However, SALA's EPS was effectively flat over the past five years, which could stop the company from paying more every 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

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for SALA that you should be aware of before investing. 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.