Prima Meat Packers, Ltd. (TSE:2281) will pay a dividend of ¥45.00 on the 1st of July. The dividend yield will be 2.8% based on this payment which is still above the industry average.
See our latest analysis for Prima Meat Packers
Prima Meat Packers' Earnings Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Prima Meat Packers' earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Looking forward, earnings per share is forecast to rise by 88.1% over the next year. If the dividend continues on this path, the payout ratio could be 42% by next year, which we think can be pretty sustainable going forward.
Prima Meat Packers Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of ¥10.00 in 2014 to the most recent total annual payment of ¥65.00. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Prima Meat Packers' EPS has declined at around 13% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income 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. Taking the debate a bit further, we've identified 3 warning signs for Prima Meat Packers that investors need to be conscious of moving forward. Is Prima Meat Packers 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.
About TSE:2281
Prima Meat Packers
Produces and markets hams and sausages, meats, processed foods, and other products in Japan.
Flawless balance sheet established dividend payer.
