Kaori Heat Treatment (TWSE:8996) Is Increasing Its Dividend To NT$4.00

Kaori Heat Treatment Co., Ltd. (TWSE:8996) will increase its dividend from last year's comparable payment on the 16th of May to NT$4.00. This takes the annual payment to 1.3% of the current stock price, which unfortunately is below what the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Kaori Heat Treatment's stock price has increased by 35% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Kaori Heat Treatment

Kaori Heat Treatment's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Kaori Heat Treatment was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to expand by 77.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 33% 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. Since 2014, the annual payment back then was NT$0.825, compared to the most recent full-year payment of NT$4.00. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

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. Kaori Heat Treatment has impressed us by growing EPS at 23% per 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 Kaori Heat Treatment's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Kaori Heat Treatment's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Kaori Heat Treatment is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Kaori Heat Treatment (of which 2 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.