How Does Kyoritsu Computer & Communication Co.,Ltd. (TYO:3670) Fare As A Dividend Stock?

Is Kyoritsu Computer & Communication Co.,Ltd. (TYO:3670) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

With a 3.0% yield and a four-year payment history, investors probably think Kyoritsu Computer & CommunicationLtd looks like a reliable dividend stock. A 3.0% yield is not inspiring, but the longer payment history has some appeal. There are a few simple ways to reduce the risks of buying Kyoritsu Computer & CommunicationLtd for its dividend, and we'll go through these below.

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Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, Kyoritsu Computer & CommunicationLtd paid out 58% of its profit as dividends. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Kyoritsu Computer & CommunicationLtd's cash payout ratio in the last year was 40%, which suggests dividends were well covered by cash generated by the business. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

With a strong net cash balance, Kyoritsu Computer & CommunicationLtd investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on Kyoritsu Computer & CommunicationLtd's financial position here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Kyoritsu Computer & CommunicationLtd has been paying a dividend for the past four years. The dividend has not fluctuated much, but with a relatively short payment history, we can't be sure this is sustainable across a full market cycle. During the past four-year period, the first annual payment was JP¥50.0 in 2017, compared to JP¥55.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 2.4% a year over that time.

It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Over the past five years, it looks as though Kyoritsu Computer & CommunicationLtd's EPS have declined at around 6.6% a year. Declining earnings per share over a number of years is not a great sign for the dividend investor. Without some improvement, this does not bode well for the long term value of a company's dividend.

Conclusion

To summarise, shareholders should always check that Kyoritsu Computer & CommunicationLtd's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Kyoritsu Computer & CommunicationLtd's payout ratios are within a normal range for the average corporation, and we like that its cashflow was stronger than reported profits. Earnings per share have been falling, and the company has a relatively short dividend history - shorter than we like, anyway. Ultimately, Kyoritsu Computer & CommunicationLtd comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.

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. To that end, Kyoritsu Computer & CommunicationLtd has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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.
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