Value HRLtd (TSE:6078) Is Due To Pay A Dividend Of ¥13.00

The board of Value HR Co.,Ltd. (TSE:6078) has announced that it will pay a dividend on the 19th of August, with investors receiving ¥13.00 per share. Even though the dividend went up, the yield is still quite low at only 1.7%.

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Value HRLtd's Projections Indicate Future Payments May Be Unsustainable

If it is predictable over a long period, even low dividend yields can be attractive. Before this announcement, Value HRLtd was paying out 82% of earnings, but a comparatively small 47% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is set to grow by 4.9% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 103%, which is a bit high and could start applying pressure to the balance sheet.

View our latest analysis for Value HRLtd

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from ¥1.88 total annually to ¥26.00. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Value HRLtd has only grown its earnings per share at 4.9% per annum over the past five years. Value HRLtd's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

Our Thoughts On Value HRLtd's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Value HRLtd's payments are rock solid. 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 don't think Value HRLtd 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Value HRLtd that you should be aware of before investing. Is Value HRLtd 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.