Odakyu Electric Railway (TSE:9007) Is Due To Pay A Dividend Of ¥15.00

Odakyu Electric Railway Co., Ltd. (TSE:9007) has announced that it will pay a dividend of ¥15.00 per share on the 2nd of December. This will take the dividend yield to an attractive 2.1%, providing a nice boost to shareholder returns.

See our latest analysis for Odakyu Electric Railway

Odakyu Electric Railway's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Odakyu Electric Railway was paying a whopping 96% as a dividend, but this only made up 13% 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.

EPS is set to fall by 33.8% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 23%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 ¥16.00 in 2014 to the most recent total annual payment of ¥30.00. This implies that the company grew its distributions at a yearly rate of about 6.5% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

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. Odakyu Electric Railway has seen EPS rising for the last five years, at 20% per annum. 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

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Odakyu Electric Railway is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Odakyu Electric Railway (of which 2 make us uncomfortable!) you should know about. Is Odakyu Electric Railway 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.