IPS' (TSE:4390) Dividend Will Be Increased To ¥20.00

IPS, Inc. (TSE:4390) will increase its dividend from last year's comparable payment on the 4th of December to ¥20.00. Even though the dividend went up, the yield is still quite low at only 1.8%.

Check out our latest analysis for IPS

IPS' Projected Earnings Seem Likely To Cover Future Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, IPS was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Looking forward, earnings per share is forecast to rise by 9.0% over the next year. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.

IPS Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2021, the annual payment back then was ¥10.00, compared to the most recent full-year payment of ¥40.00. This means that it has been growing its distributions at 59% per annum over that time. IPS has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. IPS has seen EPS rising for the last five years, at 38% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On IPS' Dividend

Overall, we always like to see the dividend being raised, but we don't think IPS will make a great income stock. While IPS is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 1 warning sign for IPS that investors should take into consideration. 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.