Tecmira Holdings Inc. (TSE:3627) has announced that it will pay a dividend of ¥5.00 per share on the 30th of May. This means that the annual payment will be 1.4% of the current stock price, which is in line with the average for the industry.
View our latest analysis for Tecmira Holdings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Tecmira Holdings' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
EPS is set to fall by 24.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 74%, which we are pretty comfortable with and we think is feasible on an earnings basis.
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 ¥4.50 in 2014, and the most recent fiscal year payment was ¥5.00. This means that it has been growing its distributions at 1.1% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Tecmira Holdings' EPS has fallen by approximately 25% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Tecmira Holdings 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for Tecmira Holdings that investors should take into consideration. 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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