Mutoh Holdings' (TSE:7999) Dividend Will Be Increased To ¥84.00

Mutoh Holdings Co., Ltd. (TSE:7999) will increase its dividend from last year's comparable payment on the 27th of June to ¥84.00. Based on this payment, the dividend yield for the company will be 2.3%, which is fairly typical for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Mutoh Holdings' stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Mutoh Holdings

Mutoh Holdings' Projected Earnings Seem Likely To Cover Future Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Mutoh Holdings was paying a whopping 136% as a dividend, but this only made up 12% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share could rise by 65.3% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 21% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of ¥50.00 in 2015 to the most recent total annual payment of ¥72.00. This means that it has been growing its distributions at 3.7% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Mutoh Holdings has grown earnings per share at 65% per 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

In summary, while it's always good to see the dividend being raised, we don't think Mutoh Holdings' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Mutoh Holdings that investors should know about before committing capital to this stock. Is Mutoh Holdings 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.