Kohsoku (TSE:7504) Is Increasing Its Dividend To ¥58.00

Kohsoku Corporation (TSE:7504) has announced that it will be increasing its dividend from last year's comparable payment on the 2nd of December to ¥58.00. Even though the dividend went up, the yield is still quite low at only 1.9%.

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 Kohsoku's stock price has increased by 41% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Kohsoku's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Kohsoku's earnings easily covered the dividend, but free cash flows were negative. 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 could expand by 9.6% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 46%, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for Kohsoku

Kohsoku Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was ¥22.00 in 2015, and the most recent fiscal year payment was ¥56.00. This means that it has been growing its distributions at 9.8% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Kohsoku has been growing its earnings per share at 9.6% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Kohsoku will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Kohsoku that investors should take into consideration. Is Kohsoku not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.