Torex Semiconductor (TSE:6616) Has Affirmed Its Dividend Of ¥28.00

Torex Semiconductor Ltd. (TSE:6616) has announced that it will pay a dividend of ¥28.00 per share on the 27th of June. This means the annual payment is 4.6% of the current stock price, which is above the average for the industry.

View our latest analysis for Torex Semiconductor

Torex Semiconductor Might Find It Hard To Continue The Dividend

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Even in the absence of profits, Torex Semiconductor is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Recent, EPS has fallen by 30.7%, so this could continue over the next year. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

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 dividend has gone from an annual total of ¥20.00 in 2015 to the most recent total annual payment of ¥56.00. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. 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.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Torex Semiconductor's EPS has declined at around 31% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

We're Not Big Fans Of Torex Semiconductor's Dividend

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Torex Semiconductor make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Torex Semiconductor you should be aware of, and 2 of them are a bit concerning. 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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