Seibu Holdings' (TSE:9024) Dividend Will Be Increased To ¥15.00

Seibu Holdings Inc. (TSE:9024) will increase its dividend from last year's comparable payment on the 4th of December to ¥15.00. The payment will take the dividend yield to 1.3%, which is in line with the average for the industry.

See our latest analysis for Seibu Holdings

Seibu Holdings' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, Seibu Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 10.5% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 36%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 ¥8.00 in 2014, and the most recent fiscal year payment was ¥30.00. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Seibu Holdings 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.

Dividend Growth May Be Hard To Come By

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. It's not great to see that Seibu Holdings' earnings per share has fallen at approximately 9.2% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On Seibu Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Seibu Holdings' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Seibu Holdings has 4 warning signs (and 2 which can't be ignored) we think you should know about. Is Seibu 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.

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