Takachiho KohekiLtd (TSE:2676) Is Due To Pay A Dividend Of ¥34.50

The board of Takachiho Koheki Co.,Ltd. (TSE:2676) has announced that it will pay a dividend of ¥34.50 per share on the 5th of December. This means the annual payment is 4.1% of the current stock price, which is above the average for the industry.

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Takachiho KohekiLtd's Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 135% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 52%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Earnings per share could rise by 78.8% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 164%, which probably can't continue without starting to put some pressure on the balance sheet.

Check out our latest analysis for Takachiho KohekiLtd

Takachiho KohekiLtd Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was ¥12.00, compared to the most recent full-year payment of ¥80.50. This means that it has been growing its distributions at 21% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Takachiho KohekiLtd Might Find It Hard To Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Takachiho KohekiLtd has been growing its earnings per share at 79% a year over the past five years. While EPS is growing rapidly, Takachiho KohekiLtd paid out a very high 135% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Our Thoughts On Takachiho KohekiLtd's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 Takachiho KohekiLtd is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Takachiho KohekiLtd that investors need to be conscious of moving forward. 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.