Komehyo HoldingsLtd (TSE:2780) Will Pay A Dividend Of ¥44.00

Komehyo Holdings Co.,Ltd. (TSE:2780) has announced that it will pay a dividend of ¥44.00 per share on the 28th of June. This will take the dividend yield to an attractive 2.4%, providing a nice boost to shareholder returns.

Check out our latest analysis for Komehyo HoldingsLtd

Komehyo HoldingsLtd's 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, Komehyo HoldingsLtd's 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.

Over the next year, EPS is forecast to expand by 7.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was ¥22.00, compared to the most recent full-year payment of ¥88.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Komehyo HoldingsLtd 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 Looks Likely To Grow

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. It's encouraging to see that Komehyo HoldingsLtd has been growing its earnings per share at 36% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Komehyo HoldingsLtd will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Komehyo HoldingsLtd has 3 warning signs (and 2 which make us uncomfortable) we think you should know about. 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.