ZOZO, Inc. (TSE:3092) has announced that it will pay a dividend of ¥53.00 per share on the 27th of November. This will take the dividend yield to an attractive 2.5%, providing a nice boost to shareholder returns.
Check out our latest analysis for ZOZO
ZOZO's Earnings Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. At the time of the last dividend payment, ZOZO was paying out a very large proportion of what it was earning and 96% 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.
EPS is set to grow by 5.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ¥6.67 in 2014 to the most recent total annual payment of ¥107.00. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. ZOZO has impressed us by growing EPS at 23% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which ZOZO hasn't been doing.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think ZOZO's payments are rock solid. While ZOZO is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
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. For example, we've identified 2 warning signs for ZOZO (1 is a bit concerning!) that you should be aware of before investing. 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.
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About TSE:3092
Flawless balance sheet with solid track record and pays a dividend.
