S Foods' (TSE:2292) Upcoming Dividend Will Be Larger Than Last Year's

S Foods Inc. (TSE:2292) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of October to ¥52.00. This will take the annual payment to 4.1% of the stock price, which is above what most companies in the industry pay.

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S Foods' 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. Based on the last payment, S Foods' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

If the company can't turn things around, EPS could fall by 8.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 91%, which is definitely on the higher side.

See our latest analysis for S Foods

S Foods Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was ¥28.00 in 2015, and the most recent fiscal year payment was ¥104.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% 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.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. It's not great to see that S Foods' earnings per share has fallen at approximately 8.1% per year over the past five years. 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.

Our Thoughts On S Foods' Dividend

Overall, we always like to see the dividend being raised, but we don't think S Foods will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for S Foods (of which 1 makes us a bit uncomfortable!) 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.

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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.