Feed OneLtd (TSE:2060) Is Paying Out A Larger Dividend Than Last Year

Feed One Co.,Ltd.'s (TSE:2060) dividend will be increasing from last year's payment of the same period to ¥15.00 on 6th of June. This will take the annual payment to 3.7% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Feed OneLtd

Feed OneLtd's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Feed OneLtd is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 10.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 19% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was ¥15.00, compared to the most recent full-year payment of ¥30.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Feed OneLtd might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

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. It's encouraging to see that Feed OneLtd has been growing its earnings per share at 10% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Feed OneLtd's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Feed OneLtd's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Feed OneLtd is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Feed OneLtd has 2 warning signs (and 1 which is concerning) we think you should know about. Is Feed OneLtd 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.