MEDIA DO (TSE:3678) Is Increasing Its Dividend To ¥35.00

MEDIA DO Co., Ltd. (TSE:3678) has announced that it will be increasing its dividend from last year's comparable payment on the 8th of May to ¥35.00. This takes the annual payment to 1.6% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for MEDIA DO

MEDIA DO's Distributions May Be Difficult To Sustain

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. While MEDIA DO is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share is forecast to expand by 29.1% over the next year. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The healthy cash flows are definitely a good sign though, so we wouldn't panic just yet, especially with the earnings growing.

MEDIA DO Doesn't Have A Long Payment History

It is great to see that MEDIA DO has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2017, the dividend has gone from ¥8.80 total annually to ¥27.00. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. MEDIA DO's EPS has fallen by approximately 24% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think MEDIA DO will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Now, if you want to look closer, it would be worth checking out our free research on MEDIA DO management tenure, salary, and performance. 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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