The board of Miraial Co., Ltd. (TSE:4238) has announced that it will pay a dividend on the 28th of April, with investors receiving ¥20.00 per share. This means the annual payment is 3.0% of the current stock price, which is above the average for the industry.

See our latest analysis for Miraial

Miraial’s Future Dividend Projections Appear Well Covered By Earnings

If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Based on the last payment, Miraial’s earnings were much higher than the dividend, but it wasn’t converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, EPS could fall by 4.3% if the company can’t turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 51%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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 ¥60.00 in 2014, and the most recent fiscal year payment was ¥40.00. Doing the maths, this is a decline of about 4.0% per year. Declining dividends isn’t generally what we look for as they can indicate that the company is running into some challenges.

The Dividend’s Growth Prospects Are Limited

With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. It’s not great to see that Miraial’s earnings per share has fallen at approximately 4.3% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we’ve picked out 3 warning signs for Miraial that investors should know about before committing capital to this stock. 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.