Pigeon (TSE:7956) Has Announced A Dividend Of ¥38.00

The board of Pigeon Corporation (TSE:7956) has announced that it will pay a dividend of ¥38.00 per share on the 30th of March. Based on this payment, the dividend yield on the company's stock will be 4.4%, which is an attractive boost to shareholder returns.

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Pigeon's Projections Indicate Future Payments May Be Unsustainable

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 96% of what it was earning and 81% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Earnings per share is forecast to rise by 3.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 99%, which probably can't continue without putting some pressure on the balance sheet.

View our latest analysis for Pigeon

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥32.33, compared to the most recent full-year payment of ¥76.00. This means that it has been growing its distributions at 8.9% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Pigeon might have put its house in order since then, but we remain cautious.

Pigeon May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Pigeon's earnings per share has fallen at approximately 2.4% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Pigeon's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Pigeon that investors should take into consideration. Is Pigeon not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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