Kanagawa Chuo Kotsu (TSE:9081) Will Pay A Larger Dividend Than Last Year At ¥50.00

Kanagawa Chuo Kotsu Co., Ltd. (TSE:9081) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of June to ¥50.00. This makes the dividend yield 2.6%, which is above the industry average.

See our latest analysis for Kanagawa Chuo Kotsu

Kanagawa Chuo Kotsu's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments 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 305% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

If the trend of the last few years continues, EPS will grow by 7.4% over the next 12 months. 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

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 2015, and the most recent fiscal year payment was ¥100.00. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See Kanagawa Chuo Kotsu's Dividend Growing

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. Kanagawa Chuo Kotsu has seen EPS rising for the last five years, at 7.4% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

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. Overall, we don't think this company has the makings of a good income stock.

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. Just as an example, we've come across 3 warning signs for Kanagawa Chuo Kotsu you should be aware of, and 1 of them is concerning. If you are a dividend investor, you might also want to look at our curated list of high yield 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.