Arclands (TSE:9842) Is Paying Out A Dividend Of ¥20.00

The board of Arclands Corporation (TSE:9842) has announced that it will pay a dividend of ¥20.00 per share on the 27th of May. The dividend yield will be 2.4% based on this payment which is still above the industry average.

View our latest analysis for Arclands

Arclands' Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Arclands is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to fall by 3.8%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 30%, which is comfortable for the company to continue in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥18.00 in 2014, and the most recent fiscal year payment was ¥40.00. This implies that the company grew its distributions at a yearly rate of about 8.3% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Arclands May Find It Hard To Grow The Dividend

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. Unfortunately, Arclands' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. While EPS growth is quite low, Arclands has the option to increase the payout ratio to return more cash to shareholders.

We should note that Arclands has issued stock equal to 54% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

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. While Arclands is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Arclands you should be aware of, and 2 of them are potentially serious. Is Arclands not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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