Fast Retailing's (TSE:9983) Shareholders Will Receive A Bigger Dividend Than Last Year

Fast Retailing Co., Ltd. (TSE:9983) has announced that it will be increasing its dividend from last year's comparable payment on the 11th of November to ¥225.00. Even though the dividend went up, the yield is still quite low at only 1.1%.

See our latest analysis for Fast Retailing

Fast Retailing's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Fast Retailing's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 6.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.

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. The annual payment during the last 10 years was ¥100.00 in 2014, and the most recent fiscal year payment was ¥450.00. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Fast Retailing has impressed us by growing EPS at 17% per year over the past five years. Fast Retailing definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Fast Retailing Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Fast Retailing that investors need to be conscious of moving forward. Is Fast Retailing 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.