Toho Holdings Co., Ltd. (TSE:8129) will increase its dividend from last year's comparable payment on the 2nd of December to ¥25.00. Despite this raise, the dividend yield of 1.1% is only a modest boost to shareholder returns.
Check out our latest analysis for Toho Holdings
Toho Holdings' Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Toho Holdings' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 1.4%. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from ¥20.00 total annually to ¥50.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Has Growth Potential
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Toho Holdings has been growing its earnings per share at 8.2% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
We Really Like Toho Holdings' Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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. Taking the debate a bit further, we've identified 1 warning sign for Toho Holdings that investors need to be conscious of moving forward. 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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About TSE:8129
Toho Holdings
Engages in the wholesale distribution of pharmaceutical products in Japan.
Flawless balance sheet and undervalued.