East Japan Railway (TSE:9020) Will Pay A Dividend Of ¥31.00

East Japan Railway Company's (TSE:9020) investors are due to receive a payment of ¥31.00 per share on 2nd of December. This will take the annual payment to 1.9% of the stock price, which is above what most companies in the industry pay.

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East Japan Railway's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, East Japan Railway's earnings easily covered the dividend, but free cash flows were negative. 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.

The next year is set to see EPS grow by 7.6%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for East Japan Railway

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ¥40.00 in 2015, and the most recent fiscal year payment was ¥62.00. This means that it has been growing its distributions at 4.5% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

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. Earnings has been rising at 2.5% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, East Japan Railway could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On East Japan Railway's Dividend

Overall, we always like to see the dividend being raised, but we don't think East Japan Railway will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For example, we've identified 2 warning signs for East Japan Railway (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is East Japan 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.