Densan System Holdings (TSE:4072) Is Increasing Its Dividend To ¥40.00

Densan System Holdings Co., Ltd. (TSE:4072) will increase its dividend from last year's comparable payment on the 27th of March to ¥40.00. This will take the dividend yield to an attractive 3.0%, providing a nice boost to shareholder returns.

View our latest analysis for Densan System Holdings

Densan System Holdings' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Densan System Holdings was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 21.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

Densan System Holdings Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was ¥20.00, compared to the most recent full-year payment of ¥80.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 2.8% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, Densan System Holdings could always pay out a higher proportion of earnings to increase shareholder returns.

Densan System Holdings Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. As an example, we've identified 2 warning signs for Densan System Holdings that you should be aware of before investing. Is Densan System Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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