Mitsubishi Estate Co., Ltd. (TSE:8802) has announced that it will pay a dividend of ¥20.00 per share on the 1st of July. Although the dividend is now higher, the yield is only 1.7%, which is below the industry average.
See our latest analysis for Mitsubishi Estate
Mitsubishi Estate's Dividend Is Well Covered By Earnings
Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, Mitsubishi Estate was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Looking forward, earnings per share is forecast to rise by 52.6% over the next year. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from ¥12.00 total annually to ¥40.00. This means that it has been growing its distributions at 13% per annum over that time. 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.
Mitsubishi Estate May Find It Hard To Grow The Dividend
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. Earnings have grown at around 3.0% a year for the past five years, which isn't massive but still better than seeing them shrink. If Mitsubishi Estate is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.
Our Thoughts On Mitsubishi Estate's 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. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Mitsubishi Estate (1 is a bit unpleasant!) 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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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.
About TSE:8802
Mitsubishi Estate
Engages in the real estate activities in Japan and internationally.
Solid track record with mediocre balance sheet.
