Scroll's (TSE:8005) Upcoming Dividend Will Be Larger Than Last Year's

Scroll Corporation (TSE:8005) will increase its dividend from last year's comparable payment on the 1st of December to ¥29.50. This takes the dividend yield to 5.6%, which shareholders will be pleased with.

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Scroll's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Scroll was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 17.5% over the next 12 months. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Scroll

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was ¥10.00, compared to the most recent full-year payment of ¥59.00. This means that it has been growing its distributions at 19% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

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. We are encouraged to see that Scroll has grown earnings per share at 18% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like Scroll's Dividend

Overall, a dividend increase is always good, and we think that Scroll is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Scroll (of which 1 is a bit unpleasant!) you should know about. Is Scroll 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.