AFC-HD AMS Life Science (TSE:2927) Has Announced A Dividend Of ¥18.00

The board of AFC-HD AMS Life Science Co., Ltd. (TSE:2927) has announced that it will pay a dividend on the 19th of May, with investors receiving ¥18.00 per share. This takes the dividend yield to 4.2%, which shareholders will be pleased with.

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AFC-HD AMS Life Science's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, AFC-HD AMS Life Science's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 16.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for AFC-HD AMS Life Science

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥10.00 in 2015, and the most recent fiscal year payment was ¥36.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. AFC-HD AMS Life Science has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that AFC-HD AMS Life Science has grown earnings per share at 16% per year over the past five years. AFC-HD AMS Life Science definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On AFC-HD AMS Life Science's Dividend

Overall, we always like to see the dividend being raised, but we don't think AFC-HD AMS Life Science will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. To that end, AFC-HD AMS Life Science has 3 warning signs (and 1 which is potentially serious) we think you should know about. Is AFC-HD AMS Life Science 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.