DIGITAL HEARTS HOLDINGS (TSE:3676) Will Pay A Dividend Of ¥11.50

DIGITAL HEARTS HOLDINGS Co., Ltd. (TSE:3676) will pay a dividend of ¥11.50 on the 5th of December. This makes the dividend yield 2.3%, which is above the industry average.

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DIGITAL HEARTS HOLDINGS' Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 74% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 57.7% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 59% by next year, which is in a pretty sustainable range.

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DIGITAL HEARTS HOLDINGS Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the annual payment back then was ¥8.00, compared to the most recent full-year payment of ¥23.00. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

DIGITAL HEARTS HOLDINGS May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that DIGITAL HEARTS HOLDINGS' earnings per share has fallen at approximately 4.9% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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. Taking the debate a bit further, we've identified 1 warning sign for DIGITAL HEARTS HOLDINGS that investors need to be conscious of moving forward. 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.