The board of Sotetsu Holdings, Inc. (TSE:9003) has announced that it will pay a dividend on the 30th of June, with investors receiving ¥30.00 per share. This makes the dividend yield 2.4%, which will augment investor returns quite nicely.
View our latest analysis for Sotetsu Holdings
Sotetsu Holdings' 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. Based on the last payment, Sotetsu Holdings was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to fall by 1.5%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 26%, which is comfortable for the company to continue in the future.
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 ¥25.00 in 2014, and the most recent fiscal year payment was ¥60.00. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
Dividend Growth May Be Hard To Achieve
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Sotetsu Holdings has only grown its earnings per share at 4.9% per annum over the past five years. If Sotetsu Holdings is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Sotetsu Holdings' payments, as there could be some issues with sustaining them into the future. While Sotetsu Holdings 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.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Sotetsu Holdings you should be aware of, and 2 of them are a bit concerning. 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.
About TSE:9003
Solid track record and fair value.
