Earth (TSE:4985) Will Pay A Larger Dividend Than Last Year At ¥125.00

The board of Earth Corporation (TSE:4985) has announced that it will be paying its dividend of ¥125.00 on the 13th of March, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 2.4%, providing a nice boost to shareholder returns.

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Earth's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Earth's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 8.1%. If the dividend continues on this path, the payout ratio could be 49% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Earth

Earth Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥110.00 in 2015, and the most recent fiscal year payment was ¥125.00. This works out to be a compound annual growth rate (CAGR) of approximately 1.3% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. In the last five years, Earth's earnings per share has shrunk at approximately 8.6% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Earth's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 1 warning sign for Earth that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.