GiG Works (TSE:2375) Will Pay A Larger Dividend Than Last Year At ¥5.00

GiG Works Inc. (TSE:2375) will increase its dividend from last year's comparable payment on the 16th of January to ¥5.00. Although the dividend is now higher, the yield is only 1.1%, which is below the industry average.

View our latest analysis for GiG Works

GiG Works Might Find It Hard To Continue The Dividend

If it is predictable over a long period, even low dividend yields can be attractive. GiG Works is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Over the next year, EPS might fall by 50.9% based on recent performance. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.

GiG Works' Dividend Has Lacked Consistency

It's comforting to see that GiG Works has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of ¥1.67 in 2017 to the most recent total annual payment of ¥5.00. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been sinking by 51% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

GiG Works' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think GiG Works will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, GiG Works has 3 warning signs (and 1 which is significant) we think you should know about. Is GiG Works not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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