Gendai Agency (TSE:2411) Will Pay A Larger Dividend Than Last Year At ¥10.00

Gendai Agency Inc. (TSE:2411) will increase its dividend from last year's comparable payment on the 4th of December to ¥10.00. This will take the dividend yield to an attractive 5.2%, providing a nice boost to shareholder returns.

Check out our latest analysis for Gendai Agency

Gendai Agency Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Gendai Agency's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 134% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, EPS could fall by 19.9% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 295%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ¥28.00 in 2014 to the most recent total annual payment of ¥20.00. The dividend has shrunk at around 3.3% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Has Limited 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. Over the past five years, it looks as though Gendai Agency's EPS has declined at around 20% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Gendai Agency's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Gendai Agency's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Gendai Agency has 3 warning signs (and 1 which is a bit concerning) we think you should know about. Is Gendai Agency 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.

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