Kanagawa Chuo Kotsu (TSE:9081) Is Due To Pay A Dividend Of ¥40.00

The board of Kanagawa Chuo Kotsu Co., Ltd. (TSE:9081) has announced that it will pay a dividend of ¥40.00 per share on the 30th of June. This makes the dividend yield 2.1%, which will augment investor returns quite nicely.

Check out our latest analysis for Kanagawa Chuo Kotsu

Kanagawa Chuo Kotsu'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. Based on the last payment, Kanagawa Chuo Kotsu was paying only paying out a fraction of earnings, but the payment was a massive 244% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 6.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was ¥25.00 in 2014, and the most recent fiscal year payment was ¥80.00. This means that it has been growing its distributions at 12% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

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. Kanagawa Chuo Kotsu has impressed us by growing EPS at 6.8% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Kanagawa Chuo Kotsu's prospects of growing its dividend payments in the future.

Our Thoughts On Kanagawa Chuo Kotsu's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kanagawa Chuo Kotsu's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Kanagawa Chuo Kotsu you should be aware of, and 1 of them makes us a bit uncomfortable. Is Kanagawa Chuo Kotsu not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.