Tohbu Network (TSE:9036) Is Paying Out A Dividend Of ¥7.50

Tohbu Network Co., Ltd. (TSE:9036) has announced that it will pay a dividend of ¥7.50 per share on the 9th of December. Based on this payment, the dividend yield on the company's stock will be 1.8%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Tohbu Network

Tohbu Network's Distributions May Be Difficult To Sustain

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Tohbu Network is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

Looking forward, earnings per share could fall by 141.3% over the next year if the trend of the last few years can't be broken. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

Tohbu Network Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. There hasn't been much of a change in the dividend over the last 2 years. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Tohbu Network's earnings per share has fallen 141% over the past year. A large drop like this could indicate a major challenge in the business, and could certainly flow through to reduced dividend payments. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.

Tohbu Network's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Tohbu Network that investors need to be conscious of moving forward. Is Tohbu Network not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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