LA Holdings (TSE:2986) Will Pay A Larger Dividend Than Last Year At ¥220.00

LA Holdings Co., Ltd. (TSE:2986) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of March to ¥220.00. This makes the dividend yield 5.9%, which is above the industry average.

Check out our latest analysis for LA Holdings

LA Holdings' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, LA Holdings was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 24.6% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.

LA Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from ¥5.00 total annually to ¥220.00. This implies that the company grew its distributions at a yearly rate of about 60% over that duration. LA 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that LA Holdings has grown earnings per share at 25% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Our Thoughts On LA Holdings' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for LA Holdings (1 shouldn't be ignored!) that you should be aware of before investing. Is LA 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.