KEL (TSE:6919) Is Due To Pay A Dividend Of ¥40.00

The board of KEL Corporation (TSE:6919) has announced that it will pay a dividend on the 5th of June, with investors receiving ¥40.00 per share. The yield is still above the industry average at 6.5%.

See our latest analysis for KEL

KEL's Projections Indicate Future Payments May Be Unsustainable

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, KEL's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 115% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

If the company can't turn things around, EPS could fall by 2.5% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 140%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥24.00 in 2014, and the most recent fiscal year payment was ¥80.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though KEL's EPS has declined at around 2.5% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

KEL's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for KEL 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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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.