ZOZO (TSE:3092) Will Pay A Dividend Of ¥53.00

The board of ZOZO, Inc. (TSE:3092) has announced that it will pay a dividend on the 27th of November, with investors receiving ¥53.00 per share. This will take the annual payment to 2.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for ZOZO

ZOZO's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. 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 7.1% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 82% which is a bit high but can definitely be sustainable.

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 dividend has gone from ¥6.67 total annually to ¥107.00. This works out to be a compound annual growth rate (CAGR) of approximately 32% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

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 seen EPS rising for the last five years, at 22% per annum. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why ZOZO is not retaining those earnings to reinvest in growth.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for ZOZO that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.