S Foods (TSE:2292) Has Announced That It Will Be Increasing Its Dividend To ¥52.00

The board of S Foods Inc. (TSE:2292) has announced that it will be paying its dividend of ¥52.00 on the 31st of October, an increased payment from last year's comparable dividend. This will take the annual payment to 4.0% of the stock price, which is above what most companies in the industry pay.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

S Foods' Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. This high of a dividend payment could start to put pressure on the balance sheet in the future.

EPS is set to fall by 16.3% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 153%, which could put the dividend in jeopardy if the company's earnings don't improve.

View our latest analysis for S Foods

S Foods 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. The dividend has gone from an annual total of ¥28.00 in 2015 to the most recent total annual payment of ¥104.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. S Foods' earnings per share has shrunk at 16% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

S Foods' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think S Foods 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. However, there are other things to consider for investors when analysing stock performance. To that end, S Foods has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.