E-Guardian (TSE:6050) Is Paying Out A Larger Dividend Than Last Year

The board of E-Guardian Inc. (TSE:6050) has announced that it will be paying its dividend of ¥31.00 on the 23rd of December, an increased payment from last year's comparable dividend. This makes the dividend yield 1.7%, which is above the industry average.

See our latest analysis for E-Guardian

E-Guardian'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. However, prior to this announcement, E-Guardian's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 4.0%. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

E-Guardian 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 dividend has gone from ¥1.67 total annually to ¥31.00. This implies that the company grew its distributions at a yearly rate of about 34% over that duration. 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.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Earnings have grown at around 4.1% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, E-Guardian has the option to increase the payout ratio to return more cash to shareholders.

An additional note is that the company has been raising capital by issuing stock equal to 15% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

We Really Like E-Guardian's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for E-Guardian 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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