DIGITAL HEARTS HOLDINGS' (TSE:3676) Dividend Will Be ¥10.50

The board of DIGITAL HEARTS HOLDINGS Co., Ltd. (TSE:3676) has announced that it will pay a dividend of ¥10.50 per share on the 5th of December. Based on this payment, the dividend yield on the company's stock will be 2.5%, which is an attractive boost to shareholder returns.

See our latest analysis for DIGITAL HEARTS HOLDINGS

DIGITAL HEARTS HOLDINGS Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 943% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 49%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share is forecast to rise by 56.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

DIGITAL HEARTS HOLDINGS Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of ¥7.50 in 2014 to the most recent total annual payment of ¥21.00. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. DIGITAL HEARTS HOLDINGS' EPS has fallen by approximately 50% per year during the past 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. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about DIGITAL HEARTS HOLDINGS' payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think DIGITAL HEARTS HOLDINGS is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 3 warning signs for DIGITAL HEARTS HOLDINGS that you should be aware of before investing. Is DIGITAL HEARTS HOLDINGS 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.