Kagome's (TSE:2811) Dividend Will Be Increased To ¥52.00

Kagome Co., Ltd.'s (TSE:2811) dividend will be increasing from last year's payment of the same period to ¥52.00 on 5th of March. Based on this payment, the dividend yield for the company will be 1.4%, which is fairly typical for the industry.

Check out our latest analysis for Kagome

Kagome's Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Kagome's dividend was only 15% of earnings, however it was paying out 417% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 0.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 21%, which is in the range that makes us comfortable with the sustainability of the dividend.

Kagome Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥16.50 in 2014, and the most recent fiscal year payment was ¥42.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Kagome has grown earnings per share at 13% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Kagome's prospects of growing its dividend payments in the future.

Our Thoughts On Kagome's Dividend

Overall, we always like to see the dividend being raised, but we don't think Kagome will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Kagome that investors should know about before committing capital to this stock. Is Kagome 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.