The board of Dentsu Soken Inc. (TSE:4812) has announced that it will pay a dividend on the 2nd of September, with investors receiving ¥54.00 per share. This makes the dividend yield 1.9%, which is above the industry average.
Check out our latest analysis for Dentsu Soken
Dentsu Soken's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Dentsu Soken was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.
The next year is set to see EPS grow by 41.3%. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from ¥10.00 total annually to ¥108.00. This works out to be a compound annual growth rate (CAGR) of approximately 27% a year over that time. Dentsu Soken has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Dentsu Soken has seen EPS rising for the last five years, at 23% per annum. Dentsu Soken is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
We Really Like Dentsu Soken's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Dentsu Soken that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
About TSE:4812
Flawless balance sheet average dividend payer.
