The board of KATITAS CO., Ltd. (TSE:8919) has announced that it will pay a dividend on the 10th of June, with investors receiving ¥39.00 per share. This makes the dividend yield about the same as the industry average at 2.4%.
KATITAS' Future Dividend Projections Appear Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, KATITAS' earnings easily covered the dividend, but free cash flows were negative. 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.
The next year is set to see EPS grow by 10.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for KATITAS
KATITAS' Dividend Has Lacked Consistency
It's comforting to see that KATITAS has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of ¥13.69 in 2017 to the most recent total annual payment of ¥78.00. This means that it has been growing its distributions at 24% 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 Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that KATITAS has grown earnings per share at 16% per year over the past five years. KATITAS definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think KATITAS' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think KATITAS is a great stock to add to your portfolio if income is your focus.
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. To that end, KATITAS has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is KATITAS not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Valuation is complex, but we're here to simplify it.
Discover if KATITAS might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.