Segue Group (TSE:3968) Is Increasing Its Dividend To ¥7.00

The board of Segue Group Co., Ltd. (TSE:3968) has announced that it will be paying its dividend of ¥7.00 on the 27th of March, an increased payment from last year's comparable dividend. This will take the annual payment to 2.2% of the stock price, which is above what most companies in the industry pay.

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Segue Group's Projections Indicate Future Payments May Be Unsustainable

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Segue Group's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Over the next year, EPS could expand by 2.9% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 109%, which is a bit high and could start applying pressure to the balance sheet.

View our latest analysis for Segue Group

Segue Group Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2018, the annual payment back then was ¥1.67, compared to the most recent full-year payment of ¥14.00. This implies that the company grew its distributions at a yearly rate of about 36% over that duration. Segue Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Segue Group May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Earnings per share has been crawling upwards at 2.9% per year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Segue Group's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Segue Group will make a great income stock. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Segue Group (of which 1 can't be ignored!) you should know about. Is Segue Group 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.