Keihanshin Building (TSE:8818) Will Pay A Dividend Of ¥18.50

Keihanshin Building Co., Ltd. (TSE:8818) will pay a dividend of ¥18.50 on the 5th of December. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.

Check out our latest analysis for Keihanshin Building

Keihanshin Building's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Keihanshin Building's dividend was only 49% of earnings, however it was paying out 144% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 5.2%. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥14.00 in 2014, and the most recent fiscal year payment was ¥37.00. This means that it has been growing its distributions at 10% 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.

The Dividend's Growth Prospects Are Limited

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. Although it's important to note that Keihanshin Building's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 0.5% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Keihanshin Building's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Keihanshin Building's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Keihanshin Building (1 is a bit concerning!) 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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