Sotetsu Holdings (TSE:9003) Is Paying Out A Dividend Of ¥30.00

Sotetsu Holdings, Inc. (TSE:9003) has announced that it will pay a dividend of ¥30.00 per share on the 2nd of December. This makes the dividend yield 2.8%, which will augment investor returns quite nicely.

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Sotetsu Holdings' Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Sotetsu Holdings is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 6.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 26%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Sotetsu Holdings

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. Since 2015, the dividend has gone from ¥30.00 total annually to ¥65.00. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Sotetsu Holdings might have put its house in order since then, but we remain cautious.

Sotetsu Holdings Could Grow Its Dividend

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. Sotetsu Holdings has impressed us by growing EPS at 9.2% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Sotetsu Holdings' prospects of growing its dividend payments in the future.

Our Thoughts On Sotetsu Holdings' Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Sotetsu Holdings is earning enough to cover the payments, the cash flows are lacking. 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 example, we've identified 2 warning signs for Sotetsu Holdings (1 is concerning!) that you should be aware of before investing. Is Sotetsu 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.