Kanagawa Chuo Kotsu (TSE:9081) Is Increasing Its Dividend To ¥50.00

Kanagawa Chuo Kotsu Co., Ltd. (TSE:9081) will increase its dividend from last year's comparable payment on the 30th of June to ¥50.00. This will take the annual payment to 2.6% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Kanagawa Chuo Kotsu

Kanagawa Chuo Kotsu's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Kanagawa Chuo Kotsu was paying a whopping 305% as a dividend, but this only made up 18% of its overall earnings. 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 7.4% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% by next year, which is in a pretty sustainable range.

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. Since 2015, the annual payment back then was ¥25.00, compared to the most recent full-year payment of ¥100.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year 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.

Kanagawa Chuo Kotsu Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Kanagawa Chuo Kotsu has been growing its earnings per share at 7.4% a 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 always good to see the dividend being raised, we don't think Kanagawa Chuo Kotsu's payments are rock solid. While Kanagawa Chuo Kotsu is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Kanagawa Chuo Kotsu (1 is concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.