Meiji Holdings' (TSE:2269) Dividend Will Be Increased To ¥52.50

Meiji Holdings Co., Ltd. (TSE:2269) will increase its dividend from last year's comparable payment on the 8th of December to ¥52.50. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns.

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Meiji Holdings' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Meiji Holdings' dividend was only 54% of earnings, however it was paying out 230% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 7.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 56% by next year, which is in a pretty sustainable range.

View our latest analysis for Meiji Holdings

Meiji Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥105.00. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Meiji Holdings May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, Meiji Holdings' earnings per share has shrunk at approximately 4.2% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Meiji Holdings' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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 Meiji Holdings 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.