Cosmo Energy Holdings (TSE:5021) Will Pay A Dividend Of ¥150.00

Cosmo Energy Holdings Co., Ltd. (TSE:5021) has announced that it will pay a dividend of ¥150.00 per share on the 15th of December. This means the annual payment is 4.5% of the current stock price, which is above the average for the industry.

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Cosmo Energy Holdings' Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Cosmo Energy Holdings' dividend made up quite a large proportion of earnings but only 60% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share is forecast to rise by 23.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 87%, which is on the higher side, but certainly still feasible.

See our latest analysis for Cosmo Energy Holdings

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ¥40.00 in 2015 to the most recent total annual payment of ¥330.00. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. Cosmo Energy Holdings 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.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been crawling upwards at 4.0% per year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Cosmo Energy Holdings' payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 4 warning signs for Cosmo Energy Holdings that investors should know about before committing capital to this stock. Is Cosmo Energy Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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.