Kyushu Railway's (TSE:9142) Shareholders Will Receive A Bigger Dividend Than Last Year

Kyushu Railway Company (TSE:9142) has announced that it will be increasing 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.

The next year is set to see EPS grow by 1.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 40%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Kyushu Railway

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 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. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Kyushu Railway Could Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. 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.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Kyushu Railway's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Kyushu Railway is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Kyushu Railway that investors need to be conscious of moving forward. 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.