The board of Avex Inc. (TSE:7860) has announced that it will pay a dividend on the 4th of December, with investors receiving ¥25.00 per share. Based on this payment, the dividend yield on the company's stock will be 3.4%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Avex
Avex Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 167% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
EPS is set to fall by 16.7% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 280%, 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 ¥60.00 in 2014 to the most recent total annual payment of ¥50.00. Doing the maths, this is a decline of about 1.8% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Avex's EPS has declined at around 17% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
Avex's Dividend Doesn't Look Great
Overall, while some might be pleased that the dividend wasn't cut, we think this may help Avex make more consistent payments in the future. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Avex (of which 1 is concerning!) you should know about. Is Avex 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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About TSE:7860
Avex
An entertainment company, engages in the music, animation and video, digital, and overseas businesses in Japan.
Excellent balance sheet low.
