EDION (TSE:2730) Has Announced A Dividend Of ¥22.00

The board of EDION Corporation (TSE:2730) has announced that it will pay a dividend on the 2nd of December, with investors receiving ¥22.00 per share. The dividend yield will be 2.5% based on this payment which is still above the industry average.

Check out our latest analysis for EDION

EDION's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, EDION's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 7.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ¥20.00 in 2014 to the most recent total annual payment of ¥45.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. EDION might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

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. However, EDION has only grown its earnings per share at 3.9% per annum over the past five years. EDION is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On EDION's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While EDION is earning enough to cover the payments, the cash flows are lacking. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for EDION you should be aware of, and 1 of them is a bit concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.