Meiji Holdings' (TSE:2269) Shareholders Will Receive A Bigger Dividend Than Last Year

Meiji Holdings Co., Ltd.'s (TSE:2269) dividend will be increasing from last year's payment of the same period to ¥50.00 on 6th of December. This makes the dividend yield 2.9%, which is above the industry average.

Check out our latest analysis for Meiji Holdings

Meiji Holdings' Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Meiji Holdings was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 82% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 6.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which is in the range that makes us comfortable with the sustainability of the dividend.

Meiji Holdings Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥100.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Although it's important to note that Meiji Holdings' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

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 Meiji Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Given that earnings are not growing, the dividend does not look nearly so attractive. See if the 8 analysts are forecasting a turnaround in our free collection of analyst estimates here. 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.