Linical's (TSE:2183) Shareholders Will Receive A Bigger Dividend Than Last Year

Linical Co., Ltd.'s (TSE:2183) dividend will be increasing from last year's payment of the same period to ¥16.00 on 12th of June. This will take the dividend yield to an attractive 4.7%, providing a nice boost to shareholder returns.

View our latest analysis for Linical

Linical's Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. While Linical is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Over the next year, EPS could expand by 2.3% if recent trends continue. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.

Linical Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was ¥7.00, compared to the most recent full-year payment of ¥16.00. This implies that the company grew its distributions at a yearly rate of about 8.6% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Linical May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Linical has only grown its earnings per share at 2.3% per annum over the past five years. With EPS growth hard to come by and the company not turning a profit, we wouldn't be particularly optimistic about the growth prospects for Linical's dividend in the future.

Our Thoughts On Linical's Dividend

Overall, we always like to see the dividend being raised, but we don't think Linical will make a great income stock. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think Linical is a great stock to add to your portfolio if income is your focus.

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. Taking the debate a bit further, we've identified 2 warning signs for Linical that investors need to be conscious of moving forward. Is Linical 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.