Hakuhodo DY Holdings' (TSE:2433) Dividend Will Be ¥16.00

The board of Hakuhodo DY Holdings Inc (TSE:2433) has announced that it will pay a dividend of ¥16.00 per share on the 4th of December. This payment means that the dividend yield will be 2.6%, which is around the industry average.

Check out our latest analysis for Hakuhodo DY Holdings

Hakuhodo DY Holdings' Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Hakuhodo DY Holdings was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share is forecast to rise by 7.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 48% by next year, which is in a pretty sustainable range.

Hakuhodo DY Holdings Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from ¥1.20 total annually to ¥32.00. This implies that the company grew its distributions at a yearly rate of about 39% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Hakuhodo DY Holdings' earnings per share has shrunk at 12% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Hakuhodo DY Holdings' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. As an example, we've identified 2 warning signs for Hakuhodo DY Holdings that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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