Pack's (TSE:3950) Dividend Will Be Increased To ¥66.00

The Pack Corporation's (TSE:3950) dividend will be increasing from last year's payment of the same period to ¥66.00 on 31st of March. This takes the annual payment to 3.3% of the current stock price, which is about average for the industry.

See our latest analysis for Pack

Pack's Payment Could Potentially Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Pack was paying only paying out a fraction of earnings, but the payment was a massive 137% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share could rise by 6.7% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.

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 ¥50.00 in 2014 to the most recent total annual payment of ¥118.00. This implies that the company grew its distributions at a yearly rate of about 9.0% over that duration. 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.

The Dividend Has Growth Potential

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. Pack has impressed us by growing EPS at 6.7% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Pack's prospects of growing its dividend payments in the future.

Our Thoughts On Pack's Dividend

Overall, we always like to see the dividend being raised, but we don't think Pack will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Pack that investors should know about before committing capital to this stock. Is Pack 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.