Yamada Holdings (TSE:9831) Has Announced That It Will Be Increasing Its Dividend To ¥17.00

Yamada Holdings Co., Ltd. (TSE:9831) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of June to ¥17.00. This takes the dividend yield to 3.5%, which shareholders will be pleased with.

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Yamada Holdings' Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, Yamada Holdings was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

The next year is set to see EPS grow by 13.2%. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Yamada Holdings

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was ¥6.00 in 2015, and the most recent fiscal year payment was ¥17.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. 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's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings has been rising at 2.5% per annum over the last five years, which admittedly is a bit slow. While growth may be thin on the ground, Yamada Holdings could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On Yamada Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Yamada Holdings will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Yamada Holdings has been making. We don't think Yamada Holdings 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Yamada Holdings (of which 1 makes us a bit uncomfortable!) 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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