Japan Cash Machine's (TSE:6418) Dividend Will Be Increased To ¥36.00

Japan Cash Machine Co., Ltd. (TSE:6418) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of June to ¥36.00. This makes the dividend yield 3.9%, which is above the industry average.

Check out our latest analysis for Japan Cash Machine

Japan Cash Machine's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Japan Cash Machine was paying a whopping 174% as a dividend, but this only made up 12% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

If the trend of the last few years continues, EPS will grow by 57.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from ¥16.00 total annually to ¥40.00. This means that it has been growing its distributions at 9.6% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Japan Cash Machine has been growing its earnings per share at 58% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Japan Cash Machine will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Japan Cash Machine that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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