Kyushu Railway's (TSE:9142) Dividend Will Be Increased To ¥57.50

The board of Kyushu Railway Company (TSE:9142) has announced that it will be paying its dividend of ¥57.50 on the 4th of December, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 2.9%, providing a nice boost to shareholder returns.

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Kyushu Railway's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. 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 0.7%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 37%, which is comfortable for the company to continue in the future.

View our latest analysis for Kyushu Railway

Kyushu Railway Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. Since 2016, the dividend has gone from ¥37.50 total annually to ¥115.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Kyushu Railway has been growing its earnings per share at 29% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Kyushu Railway's Dividend

Overall, we always like to see the dividend being raised, but we don't think Kyushu Railway will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Kyushu Railway (of which 1 shouldn't be ignored!) you should know about. 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.