Kohnan Shoji's (TSE:7516) Dividend Will Be Increased To ¥50.00

Kohnan Shoji Co., Ltd. (TSE:7516) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of November to ¥50.00. This takes the dividend yield to 2.6%, which shareholders will be pleased with.

See our latest analysis for Kohnan Shoji

Kohnan Shoji's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. But before making this announcement, Kohnan Shoji's earnings quite easily covered the dividend. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Looking forward, earnings per share could rise by 5.5% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 22%, which is in the range that makes us comfortable with the sustainability of the dividend.

Kohnan Shoji Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2017, the dividend has gone from ¥44.00 total annually to ¥100.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Kohnan Shoji Could Grow Its Dividend

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 Kohnan Shoji has grown earnings per share at 5.5% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Kohnan Shoji's prospects of growing its dividend payments in the future.

Our Thoughts On Kohnan Shoji's Dividend

Overall, we always like to see the dividend being raised, but we don't think Kohnan Shoji will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Kohnan Shoji has been making. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Kohnan Shoji (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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

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