Segue Group (TSE:3968) Is Paying Out A Larger Dividend Than Last Year

Segue Group Co., Ltd. (TSE:3968) will increase its dividend from last year's comparable payment on the 27th of March to ¥7.00. This makes the dividend yield 2.1%, which is above the industry average.

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Segue Group's Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.

EPS is set to grow by 2.9% over the next year if recent trends continue. 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 Is Still Building Its Track Record

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. The dividend has gone from an annual total of ¥1.67 in 2018 to the most recent total annual payment of ¥14.00. This means that it has been growing its distributions at 36% per annum over that time. 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

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 2.9% per annum over the last five years, which admittedly is a bit slow. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

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 track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Segue Group 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. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for Segue Group you should be aware of, and 1 of them makes us a bit uncomfortable. 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.