Kakaku.com (TSE:2371) Is Increasing Its Dividend To ¥25.00

Kakaku.com, Inc. (TSE:2371) will increase its dividend from last year's comparable payment on the 2nd of December to ¥25.00. This makes the dividend yield 2.3%, which is above the industry average.

View our latest analysis for Kakaku.com

Kakaku.com's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 79% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 10.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Kakaku.com Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥12.50 in 2014, and the most recent fiscal year payment was ¥50.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 2.8% a year for the past five years, which isn't massive but still better than seeing them shrink. Kakaku.com's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Kakaku.com's payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 10 Kakaku.com analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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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