MUGEN ESTATELtd (TSE:3299) Will Pay A Larger Dividend Than Last Year At ¥92.00

MUGEN ESTATE Co.,Ltd. (TSE:3299) will increase its dividend from last year's comparable payment on the 28th of March to ¥92.00. This will take the dividend yield to an attractive 4.3%, providing a nice boost to shareholder returns.

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 MUGEN ESTATELtd's stock price has increased by 49% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for MUGEN ESTATELtd

MUGEN ESTATELtd's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, MUGEN ESTATELtd was paying only paying out a fraction of earnings, but the payment was a massive 411% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to fall by 4.2% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 48%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was ¥6.00, compared to the most recent full-year payment of ¥92.00. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that MUGEN ESTATELtd has grown earnings per share at 14% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On MUGEN ESTATELtd's Dividend

In summary, while it's always good to see the dividend being raised, we don't think MUGEN ESTATELtd's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think MUGEN ESTATELtd is a great stock to add to your portfolio if income is your focus.

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 4 warning signs for MUGEN ESTATELtd (2 shouldn't be ignored!) that you should be aware of before investing. 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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