Sawai Group Holdings (TSE:4887) Is Paying Out A Larger Dividend Than Last Year

Sawai Group Holdings Co., Ltd. (TSE:4887) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of June to ¥28.00. This makes the dividend yield 2.8%, which is above the industry average.

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Sawai Group Holdings' Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Sawai Group Holdings was paying out 1,023% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Earnings per share is forecast to rise by 27.5% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

See our latest analysis for Sawai Group Holdings

Sawai Group Holdings Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was ¥33.33, compared to the most recent full-year payment of ¥56.00. This means that it has been growing its distributions at 5.3% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Sawai Group Holdings' earnings per share has shrunk at 55% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Sawai Group Holdings' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Sawai Group Holdings' payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Sawai Group Holdings is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Sawai Group Holdings (of which 2 can't be ignored!) you should know about. Is Sawai Group Holdings 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.