Star Mica Holdings (TSE:2975) Is Increasing Its Dividend To ¥13.00

Star Mica Holdings Co., Ltd. (TSE:2975) will increase its dividend from last year's comparable payment on the 4th of August to ¥13.00. This makes the dividend yield about the same as the industry average at 2.8%.

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Star Mica Holdings' Future Dividend Projections Appear Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Star Mica Holdings' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS could expand by 11.1% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Star Mica Holdings

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥4.50 in 2015, and the most recent fiscal year payment was ¥26.00. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Star Mica Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Star Mica Holdings has been growing its earnings per share at 11% a year over the past five years. Star Mica Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Star Mica Holdings' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Star Mica Holdings is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Star Mica Holdings has 2 warning signs (and 1 which is a bit concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.