Keikyu (TSE:9006) Has Announced A Dividend Of ¥17.00

The board of Keikyu Corporation (TSE:9006) has announced that it will pay a dividend on the 5th of December, with investors receiving ¥17.00 per share. This makes the dividend yield 2.2%, which is above the industry average.

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Keikyu's 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. Keikyu 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.

Looking forward, earnings per share is forecast to rise by 4.7% over the next year. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Keikyu

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 ¥12.00 total annually to ¥34.00. This means that it has been growing its distributions at 11% per annum over that time. Keikyu has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Keikyu 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. Keikyu has seen EPS rising for the last five years, at 9.5% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Keikyu's prospects of growing its dividend payments in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Keikyu (of which 1 can't be ignored!) you should know about. 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.