Mitsubishi Estate (TSE:8802) Is Paying Out A Larger Dividend Than Last Year

Mitsubishi Estate Co., Ltd. (TSE:8802) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of December to ¥21.00. Despite this raise, the dividend yield of 1.9% is only a modest boost to shareholder returns.

Check out our latest analysis for Mitsubishi Estate

Mitsubishi Estate's Payment Could Potentially Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Mitsubishi Estate is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 5.5%. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of ¥12.00 in 2014 to the most recent total annual payment of ¥43.00. This means that it has been growing its distributions at 14% per annum over that time. Mitsubishi Estate 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.

Mitsubishi Estate Could Grow Its 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. Mitsubishi Estate has impressed us by growing EPS at 7.4% per year over the past five years. Mitsubishi Estate definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Mitsubishi Estate's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Mitsubishi Estate's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Mitsubishi Estate has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.