Does Hokuyaku Takeyama Holdings,Inc. (SPSE:3055) Have A Place In Your Dividend Portfolio?

Dividend paying stocks like Hokuyaku Takeyama Holdings,Inc. (SPSE:3055) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

A slim 2.0% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Hokuyaku Takeyama HoldingsInc could have potential. The company also bought back stock during the year, equivalent to approximately 1.6% of the company's market capitalisation at the time. There are a few simple ways to reduce the risks of buying Hokuyaku Takeyama HoldingsInc for its dividend, and we'll go through these below.

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Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, Hokuyaku Takeyama HoldingsInc paid out 27% of its profit as dividends. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Unfortunately, while Hokuyaku Takeyama HoldingsInc pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.

With a strong net cash balance, Hokuyaku Takeyama HoldingsInc investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of Hokuyaku Takeyama HoldingsInc's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Hokuyaku Takeyama HoldingsInc has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past 10-year period, the first annual payment was JP¥10.5 in 2011, compared to JP¥15.0 last year. Dividends per share have grown at approximately 3.6% per year over this time.

Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think is seriously impressive.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Earnings have grown at around 2.7% a year for the past five years, which is better than seeing them shrink! Hokuyaku Takeyama HoldingsInc is paying out less than half of its earnings, which we like. However, earnings per share are unfortunately not growing much. Might this suggest that the company should pay a higher dividend instead?

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Firstly, the company has a conservative payout ratio, although we'd note that its cashflow in the past year was substantially lower than its reported profit. Earnings per share growth has been slow, but we respect a company that maintains a relatively stable dividend. Ultimately, Hokuyaku Takeyama HoldingsInc comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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 Hokuyaku Takeyama HoldingsInc that investors should take into consideration.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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.
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