Kohnan Shoji (TSE:7516) Is Increasing Its Dividend To ¥65.00

Kohnan Shoji Co., Ltd.'s (TSE:7516) dividend will be increasing from last year's payment of the same period to ¥65.00 on 6th of November. This makes the dividend yield 3.3%, which is above the industry average.

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Kohnan Shoji's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Kohnan Shoji was paying a whopping 285% as a dividend, but this only made up 21% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS could expand by 2.5% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 26%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Kohnan Shoji

Kohnan Shoji Doesn't Have A Long Payment History

It is great to see that Kohnan Shoji 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 annual payment back then was ¥44.00, compared to the most recent full-year payment of ¥130.00. This means that it has been growing its distributions at 15% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Kohnan Shoji May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, Kohnan Shoji has only grown its earnings per share at 2.5% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Kohnan Shoji's payments are rock solid. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Kohnan Shoji has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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