Ultrafabrics HoldingsLtd (TSE:4235) Is Due To Pay A Dividend Of ¥39.00

The board of Ultrafabrics Holdings Co.,Ltd. (TSE:4235) has announced that it will pay a dividend on the 13th of March, with investors receiving ¥39.00 per share. This makes the dividend yield 5.2%, which will augment investor returns quite nicely.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Ultrafabrics HoldingsLtd'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 payment, Ultrafabrics HoldingsLtd's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Earnings per share is forecast to rise by 37.7% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 90% which is a bit high but can definitely be sustainable.

See our latest analysis for Ultrafabrics HoldingsLtd

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. Since 2015, the dividend has gone from ¥7.50 total annually to ¥39.00. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Ultrafabrics HoldingsLtd Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Ultrafabrics HoldingsLtd has impressed us by growing EPS at 30% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

Our Thoughts On Ultrafabrics HoldingsLtd's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Ultrafabrics HoldingsLtd has 4 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.