Is It Smart To Buy UMC Electronics Co., Ltd. (TSE:6615) Before It Goes Ex-Dividend?

UMC Electronics Co., Ltd. (TSE:6615) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase UMC Electronics' shares on or after the 27th of September will not receive the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be JP¥5.00 per share, on the back of last year when the company paid a total of JP¥10.00 to shareholders. Last year's total dividend payments show that UMC Electronics has a trailing yield of 2.6% on the current share price of JP¥386.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether UMC Electronics has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for UMC Electronics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. UMC Electronics has a low and conservative payout ratio of just 15% of its income after tax.

Click here to see how much of its profit UMC Electronics paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see UMC Electronics's earnings have been skyrocketing, up 66% per annum for the past five years. UMC Electronics looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. UMC Electronics has seen its dividend decline 9.5% per annum on average over the past eight years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Should investors buy UMC Electronics for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, UMC Electronics appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 4 warning signs for UMC Electronics that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.