MODEC (TSE:6269) Has Announced That It Will Be Increasing Its Dividend To ¥60.00

MODEC, Inc. (TSE:6269) will increase its dividend from last year's comparable payment on the 10th of September to ¥60.00. This makes the dividend yield 3.4%, which is above the industry average.

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MODEC's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, MODEC's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to fall by 1.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 21%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

See our latest analysis for MODEC

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 ¥32.50 total annually to ¥120.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. MODEC 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 Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that MODEC has been growing its earnings per share at 53% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

MODEC Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, MODEC has 3 warning signs (and 2 which are potentially serious) we think you should know about. 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.