Treasure FactoryLTD's (TSE:3093) Dividend Will Be ¥16.00

The board of Treasure Factory Co.,LTD. (TSE:3093) has announced that it will pay a dividend of ¥16.00 per share on the 1st of November. This will take the annual payment to 1.7% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Treasure FactoryLTD

Treasure FactoryLTD's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Treasure FactoryLTD's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

The next year is set to see EPS grow by 40.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 27% by next year, which is in a pretty sustainable range.

Treasure FactoryLTD's Dividend Has Lacked Consistency

Looking back, Treasure FactoryLTD's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The annual payment during the last 9 years was ¥5.50 in 2015, and the most recent fiscal year payment was ¥32.00. 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 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. Treasure FactoryLTD has impressed us by growing EPS at 31% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Treasure FactoryLTD will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

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. Case in point: We've spotted 3 warning signs for Treasure FactoryLTD (of which 1 is a bit unpleasant!) you should know about. Is Treasure FactoryLTD not quite the opportunity you were looking for? Why not check out our selection of top 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com