A.D.Works GroupLtd (TSE:2982) Has Announced That It Will Be Increasing Its Dividend To ¥8.00

A.D.Works Group Co.,Ltd. (TSE:2982) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of March to ¥8.00. This will take the annual payment to 3.2% of the stock price, which is above what most companies in the industry pay.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that A.D.Works GroupLtd's stock price has increased by 66% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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A.D.Works GroupLtd's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, A.D.Works GroupLtd's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 39.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for A.D.Works GroupLtd

A.D.Works GroupLtd's Dividend Has Lacked Consistency

It's comforting to see that A.D.Works GroupLtd has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2020, the annual payment back then was ¥0.35, compared to the most recent full-year payment of ¥16.00. This works out to be a compound annual growth rate (CAGR) of approximately 115% a year over that time. A.D.Works GroupLtd 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. We are encouraged to see that A.D.Works GroupLtd has grown earnings per share at 39% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like A.D.Works GroupLtd's Dividend

Overall, a dividend increase is always good, and we think that A.D.Works GroupLtd is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for A.D.Works GroupLtd (of which 1 is potentially serious!) 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.