Pack's (TSE:3950) Dividend Will Be ¥22.00

The Pack Corporation (TSE:3950) has announced that it will pay a dividend of ¥22.00 per share on the 27th of March. This makes the dividend yield 3.4%, which will augment investor returns quite nicely.

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Pack's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last dividend, Pack is earning enough to cover the payment, but then it makes up 232% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

EPS is set to grow by 9.1% over the next year if recent trends continue. If recent patterns in the dividend continue, the payout ratio in 12 months could be 78% which is a bit high but can definitely be sustainable.

See our latest analysis for Pack

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥16.67 in 2015, and the most recent fiscal year payment was ¥41.33. This works out to be a compound annual growth rate (CAGR) of approximately 9.5% a year 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. Pack might have put its house in order since then, but we remain cautious.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Pack has grown earnings per share at 9.1% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Pack's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Pack's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. As an example, we've identified 1 warning sign for Pack that you should be aware of before investing. 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.