KATITAS' (TSE:8919) Dividend Will Be ¥27.00

The board of KATITAS CO., Ltd. (TSE:8919) has announced that it will pay a dividend on the 13th of June, with investors receiving ¥27.00 per share. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.

See our latest analysis for KATITAS

KATITAS' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. At the time of the last dividend payment, KATITAS was paying out a very large proportion of what it was earning and 455% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

The next year is set to see EPS grow by 117.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 44%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

KATITAS' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2018, the annual payment back then was ¥13.69, compared to the most recent full-year payment of ¥54.00. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. KATITAS 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.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though KATITAS' EPS has declined at around 3.3% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. 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.

KATITAS' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think KATITAS' payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for KATITAS that investors need to be conscious of moving forward. Is KATITAS not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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