KOSÉ (TSE:4922) Has Affirmed Its Dividend Of ¥70.00

The board of KOSÉ Corporation (TSE:4922) has announced that it will pay a dividend of ¥70.00 per share on the 10th of September. This makes the dividend yield 2.4%, which will augment investor returns quite nicely.

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KOSÉ's Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the dividend made up 136% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

The next 12 months is set to see EPS grow by 20.3%. If the dividend continues on its recent course, the payout ratio in 12 months could be 120%, which is a bit high and could start applying pressure to the balance sheet.

See our latest analysis for KOSÉ

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was ¥54.00, compared to the most recent full-year payment of ¥140.00. This works out to be a compound annual growth rate (CAGR) of approximately 10.0% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Potential Is Shaky

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. Earnings per share has been sinking by 26% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

KOSÉ's Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for KOSÉ you should be aware of, and 1 of them doesn't sit too well with us. Is KOSÉ 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.