Dentsu Group Inc. (TSE:4324) has announced that it will pay a dividend of ¥69.75 per share on the 14th of March. This will take the dividend yield to an attractive 3.5%, providing a nice boost to shareholder returns.
See our latest analysis for Dentsu Group
Dentsu Group's Distributions May Be Difficult To Sustain
If the payments aren't sustainable, a high yield for a few years won't matter that much. Despite not generating a profit, Dentsu Group is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.
Analysts expect the EPS to grow by 34.9% over the next 12 months. The company seems to be going down the right path, but it will take a little bit longer than a year to cross over into profitability. Unless this happens fairly soon, the dividend could start to come under pressure.
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 2014, the dividend has gone from ¥32.00 total annually to ¥130.75. This means that it has been growing its distributions at 15% per annum over that time. 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.
The Company Could Face Some Challenges Growing The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Dentsu Group has been growing its earnings per share at 22% a year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Dentsu Group will make a great income stock. Strong earnings growth means Dentsu Group 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.
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. For example, we've identified 2 warning signs for Dentsu Group (1 is a bit unpleasant!) 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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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.
About TSE:4324
Dentsu Group
Operates in the advertising business in Japan and internationally.
Undervalued with adequate balance sheet.
