D. I. System (TSE:4421) Has Announced That It Will Be Increasing Its Dividend To ¥27.00

The board of D. I. System Co., Ltd. (TSE:4421) has announced that it will be paying its dividend of ¥27.00 on the 25th of December, an increased payment from last year's comparable dividend. This will take the annual payment to 2.7% of the stock price, which is above what most companies in the industry pay.

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D. I. System's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, D. I. System's dividend was only 31% of earnings, however it was paying out 183% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 5.9% over the next 12 months. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for D. I. System

D. I. System Is Still Building Its Track Record

It is great to see that D. I. System has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 7 years was ¥12.50 in 2018, and the most recent fiscal year payment was ¥27.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

D. I. System Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that D. I. System has grown earnings per share at 5.9% per year over the past five years. D. I. System definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

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. For instance, we've picked out 2 warning signs for D. I. System that investors should take into consideration. Is D. I. System 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.