KATITAS (TSE:8919) Is Paying Out A Larger Dividend Than Last Year

KATITAS CO., Ltd. (TSE:8919) has announced that it will be increasing its dividend from last year's comparable payment on the 28th of November to ¥28.00. This makes the dividend yield 3.1%, which is above the industry average.

View our latest analysis for KATITAS

KATITAS' Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, KATITAS' dividend made up quite a large proportion of earnings but only 47% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 9.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

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. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was ¥13.69 in 2017, and the most recent fiscal year payment was ¥56.00. This means that it has been growing its distributions at 22% 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 Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. KATITAS has impressed us by growing EPS at 6.7% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

Overall, we always like to see the dividend being raised, but we don't think KATITAS will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign 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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