Kyushu Railway (TSE:9142) Is Increasing Its Dividend To ¥57.50

Kyushu Railway Company (TSE:9142) will increase its dividend from last year's comparable payment on the 4th of December to ¥57.50. This will take the dividend yield to an attractive 3.1%, providing a nice boost to shareholder returns.

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Kyushu Railway's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Kyushu Railway was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 1.5%. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Kyushu Railway

Kyushu Railway Doesn't Have A Long Payment History

Kyushu Railway's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 9 years was ¥37.50 in 2016, and the most recent fiscal year payment was ¥115.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year 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.

Kyushu Railway Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Kyushu Railway has grown earnings per share at 7.5% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Kyushu Railway's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Kyushu Railway that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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