Pigeon (TSE:7956) Is Paying Out A Dividend Of ¥38.00

Pigeon Corporation (TSE:7956) will pay a dividend of ¥38.00 on the 3rd of September. Based on this payment, the dividend yield on the company's stock will be 4.2%, which is an attractive boost to shareholder returns.

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Estimates Indicate Pigeon's Could Struggle to Maintain Dividend Payments In The Future

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, the dividend made up 76% of cash flows, but a higher proportion of net income. 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 4.1% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 106%, which is a bit high and could start applying pressure to the balance sheet.

Check out our latest analysis for Pigeon

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ¥30.00 in 2015 to the most recent total annual payment of ¥76.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.7% 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 May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Pigeon has seen earnings per share falling at 6.3% per year over the last five years. 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. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Pigeon 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Pigeon that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.