Kyushu Railway (TSE:9142) Is Due To Pay A Dividend Of ¥93.00

Kyushu Railway Company's (TSE:9142) investors are due to receive a payment of ¥93.00 per share on 26th of June. This means the annual payment is 2.6% of the current stock price, which is above the average for the industry.

See our latest analysis for Kyushu Railway

Kyushu Railway's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Kyushu Railway's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to fall by 12.7%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 35%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Kyushu Railway Doesn't Have A Long Payment History

It is great to see that Kyushu Railway has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of ¥37.50 in 2017 to the most recent total annual payment of ¥93.00. This means that it has been growing its distributions at 14% per annum over that time. Kyushu Railway has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Although it's important to note that Kyushu Railway's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Our Thoughts On Kyushu Railway's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

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. To that end, Kyushu Railway has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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