Prima Meat Packers (TSE:2281) Is Paying Out A Dividend Of ¥40.00

Prima Meat Packers, Ltd.'s (TSE:2281) investors are due to receive a payment of ¥40.00 per share on 26th of June. Based on this payment, the dividend yield on the company's stock will be 3.1%, which is an attractive boost to shareholder returns.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Prima Meat Packers' Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment was quite easily covered by earnings, but it made up 2,628% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 11.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 68% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Prima Meat Packers

Prima Meat Packers Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from ¥10.00 total annually to ¥80.00. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Is Doubtful

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. Over the past five years, it looks as though Prima Meat Packers' EPS has declined at around 9.9% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. 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

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Prima Meat Packers that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.