Mr Max Holdings' (TSE:8203) Upcoming Dividend Will Be Larger Than Last Year's

Mr Max Holdings Ltd. (TSE:8203) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of May to ¥27.00. This will take the annual payment to 3.5% of the stock price, which is above what most companies in the industry pay.

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Mr Max Holdings' Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Mr Max Holdings' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 1.7% over the next 12 months. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Mr Max Holdings

Mr Max Holdings' Dividend Has Lacked Consistency

Mr Max Holdings has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the dividend has gone from ¥14.00 total annually to ¥27.00. This implies that the company grew its distributions at a yearly rate of about 8.6% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Mr Max Holdings hasn't seen much change in its earnings per share over the last five years. While EPS growth is quite low, Mr Max Holdings has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Mr Max Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Mr Max Holdings' 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Mr Max Holdings (of which 2 make us uncomfortable!) you should know about. 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.