Autobacs Seven Co., Ltd. (TSE:9832) has announced that it will pay a dividend of ¥30.00 per share on the 27th of November. Based on this payment, the dividend yield on the company's stock will be 3.8%, which is an attractive boost to shareholder returns.
View our latest analysis for Autobacs Seven
Autobacs Seven's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Autobacs Seven was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.
Over the next year, EPS is forecast to expand by 5.6%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 82% - on the higher side, but we wouldn't necessarily say this is unsustainable.
Autobacs Seven Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from ¥54.00 total annually to ¥60.00. This means that it has been growing its distributions at 1.1% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 4.1% per annum over the last five years, which admittedly is a bit slow. Growth of 4.1% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Autobacs Seven that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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About TSE:9832
Autobacs Seven
Operates a chain of retail stores for automotive goods and services in Japan and internationally.
Excellent balance sheet average dividend payer.
