PCA's (TSE:9629) Shareholders Will Receive A Bigger Dividend Than Last Year

PCA Corporation's (TSE:9629) dividend will be increasing from last year's payment of the same period to ¥95.00 on 23rd of June. This will take the annual payment to 5.4% of the stock price, which is above what most companies in the industry pay.

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PCA's Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, PCA's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share could rise by 5.2% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 142%, which is a bit high and could start applying pressure to the balance sheet.

View our latest analysis for PCA

PCA 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 2015, the annual payment back then was ¥10.33, compared to the most recent full-year payment of ¥95.00. This means that it has been growing its distributions at 25% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

PCA May Have Challenges Growing The Dividend

Investors could be attracted to the stock based on the quality of its payment history. PCA has impressed us by growing EPS at 5.2% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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 don't think PCA is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for PCA you should be aware of, and 1 of them is significant. Is PCA 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.