DKS' (TSE:4461) Dividend Will Be Increased To ¥80.00
DKS Co. Ltd. (TSE:4461) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of June to ¥80.00. This takes the annual payment to 2.1% of the current stock price, which is about average for the industry.
DKS' Projected Earnings Seem Likely To Cover Future Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, prior to this announcement, DKS' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to expand by 16.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.
View our latest analysis for DKS
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ¥45.00 in 2015, and the most recent fiscal year payment was ¥160.00. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Has Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that DKS has been growing its earnings per share at 10.0% a year over the past five years. DKS definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
We should note that DKS has issued stock equal to 11% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
We Really Like DKS' Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
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. For instance, we've picked out 2 warning signs for DKS that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.