J.E.T (TSE:6228) Will Pay A Smaller Dividend Than Last Year

J.E.T. Co., Ltd.'s (TSE:6228) dividend is being reduced from last year's payment covering the same period to ¥17.00 on the 28th of March. However, the dividend yield of 2.0% is still a decent boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. J.E.T's stock price has reduced by 45% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

See our latest analysis for J.E.T

J.E.T's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, J.E.T's earnings easily covered the dividend, but free cash flows were negative. 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.

Looking forward, earnings per share could rise by 7.5% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 16% by next year, which is in a pretty sustainable range.

J.E.T Is Still Building Its Track Record

It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

We Could See J.E.T's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. J.E.T has impressed us by growing EPS at 7.5% per year over the past five years. J.E.T definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We should note that J.E.T has issued stock equal to 16% 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.

Our Thoughts On J.E.T's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for J.E.T you should be aware of, and 1 of them is significant. 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.