KG Intelligence (TSE:2408) Has Announced A Dividend Of ¥18.00

KG Intelligence CO., LTD. (TSE:2408) has announced that it will pay a dividend of ¥18.00 per share on the 18th of August. This will take the dividend yield to an attractive 5.6%, providing a nice boost to shareholder returns.

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KG Intelligence's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the dividend made up 106% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

EPS is set to grow by 59.0% over the next year if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 77%, which is on the higher side, but certainly still feasible.

See our latest analysis for KG Intelligence

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was ¥10.80, compared to the most recent full-year payment of ¥36.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

KG Intelligence's Dividend Might Lack Growth

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. We are encouraged to see that KG Intelligence has grown earnings per share at 59% 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.

KG Intelligence's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means KG Intelligence has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.

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. To that end, KG Intelligence has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is KG Intelligence not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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