Relo Group's (TSE:8876) Dividend Will Be Increased To ¥42.00

Relo Group, Inc. (TSE:8876) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of June to ¥42.00. Despite this raise, the dividend yield of 2.0% is only a modest boost to shareholder returns.

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Relo Group's Distributions May Be Difficult To Sustain

If it is predictable over a long period, even low dividend yields can be attractive. Even though Relo Group isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Looking forward, earnings per share is forecast to expand by 16.5% over the next year. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The healthy cash flows are definitely a good sign though, so we wouldn't panic just yet, especially with the earnings growing.

Check out our latest analysis for Relo Group

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥11.50 in 2015, and the most recent fiscal year payment was ¥38.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Relo Group's earnings per share has shrunk at 16% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Relo Group's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Relo Group will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Relo Group that investors should know about before committing capital to this stock. 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.