Treasure FactoryLTD's (TSE:3093) Shareholders Will Receive A Bigger Dividend Than Last Year

Treasure Factory Co.,LTD. (TSE:3093) will increase its dividend from last year's comparable payment on the 1st of November to ¥18.00. This makes the dividend yield 1.7%, which is above the industry average.

Check out our latest analysis for Treasure FactoryLTD

Treasure FactoryLTD's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Treasure FactoryLTD was earning enough to cover the dividend, but free cash flows weren't positive. 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 12.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

Treasure FactoryLTD's Dividend Has Lacked Consistency

Looking back, Treasure FactoryLTD's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the annual payment back then was ¥5.50, compared to the most recent full-year payment of ¥32.00. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. 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

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. Treasure FactoryLTD has impressed us by growing EPS at 31% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Treasure FactoryLTD's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Treasure FactoryLTD's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Treasure FactoryLTD is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Treasure FactoryLTD that you should be aware of before investing. 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.