Milbon (TSE:4919) Will Pay A Dividend Of ¥40.00

Milbon Co., Ltd.'s (TSE:4919) investors are due to receive a payment of ¥40.00 per share on 26th of August. The dividend yield will be 2.9% based on this payment which is still above the industry average.

View our latest analysis for Milbon

Milbon's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Milbon's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 184% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 49.8% over the next year. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

Milbon Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was ¥28.33, compared to the most recent full-year payment of ¥88.00. This means that it has been growing its distributions at 12% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Over the past five years, it looks as though Milbon's EPS has declined at around 2.2% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Milbon's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Milbon's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Milbon is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Milbon that investors need to be conscious of moving forward. Is Milbon 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.