Autobacs Seven (TSE:9832) Has Affirmed Its Dividend Of ¥30.00

The board of Autobacs Seven Co., Ltd. (TSE:9832) has announced that it will pay a dividend on the 27th of November, with investors receiving ¥30.00 per share. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Autobacs Seven

Autobacs Seven's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up a very large portion of earnings and also represented 89% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

EPS is set to grow by 13.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 84%, which is on the higher side, but certainly still feasible.

Autobacs Seven Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ¥54.00 in 2014, and the most recent fiscal year payment was ¥60.00. This works out to be a compound annual growth rate (CAGR) of approximately 1.1% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Autobacs Seven hasn't seen much change in its earnings per share over the last five years. Autobacs Seven's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Autobacs Seven's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Autobacs Seven's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Autobacs Seven is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Autobacs Seven that investors should take into consideration. 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.