Digital Garage's (TSE:4819) Upcoming Dividend Will Be Larger Than Last Year's

Digital Garage, Inc.'s (TSE:4819) dividend will be increasing from last year's payment of the same period to ¥53.00 on 24th of June. Even though the dividend went up, the yield is still quite low at only 1.1%.

Check out our latest analysis for Digital Garage

Digital Garage's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Digital Garage's Could Struggle to Maintain Dividend Payments In The Future

Digital Garage's Future Dividends May Potentially Be At Risk

Even a low dividend yield can be attractive if it is sustained for years on end. While Digital Garage is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

The next 12 months is set to see EPS grow by 101.6%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

Digital Garage Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was ¥5.00 in 2015, and the most recent fiscal year payment was ¥43.00. This means that it has been growing its distributions at 24% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Digital Garage's EPS has declined at around 26% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On Digital Garage's Dividend

Overall, we always like to see the dividend being raised, but we don't think Digital Garage will make a great income stock. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Digital Garage stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.