MEDIA DO's (TSE:3678) Dividend Will Be Increased To ¥27.00

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 ¥27.00. The payment will take the dividend yield to 1.9%, which is in line with the average for the industry.

View our latest analysis for MEDIA DO

MEDIA DO's Distributions May Be Difficult To Sustain

We aren't too impressed by dividend yields unless they can be sustained over time. MEDIA DO is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Over the next year, EPS is forecast to rise by 29.9%. 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 positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.

MEDIA DO Doesn't Have A Long Payment History

MEDIA DO's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of ¥8.80 in 2017 to the most recent total annual payment of ¥27.00. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. MEDIA DO has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that MEDIA DO has grown earnings per share at 5.7% per year over the past five years. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for MEDIA DO that investors should know about before committing capital to this stock. 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.