Coca-Cola Bottlers Japan Holdings (TSE:2579) Is Paying Out A Larger Dividend Than Last Year

The board of Coca-Cola Bottlers Japan Holdings Inc. (TSE:2579) has announced that it will be paying its dividend of ¥28.00 on the 28th of March, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.3%, which is in line with the average for the industry.

Check out our latest analysis for Coca-Cola Bottlers Japan Holdings

Coca-Cola Bottlers Japan Holdings' Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the company was paying out 112% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 26%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 21.0%. If the dividend continues along recent trends, we estimate the payout ratio could reach 89%, which is on the higher side, but certainly still feasible.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from ¥41.00 total annually to ¥56.00. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Coca-Cola Bottlers Japan Holdings Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Coca-Cola Bottlers Japan Holdings has seen EPS rising for the last five years, at 66% per annum. Although earnings per share is up nicely Coca-Cola Bottlers Japan Holdings is paying out 112% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Coca-Cola Bottlers Japan Holdings that investors should take into consideration. 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.