UMC Electronics (TSE:6615) Is Paying Out A Dividend Of ¥5.00

The board of UMC Electronics Co., Ltd. (TSE:6615) has announced that it will pay a dividend of ¥5.00 per share on the 30th of June. The dividend yield will be 2.8% based on this payment which is still above the industry average.

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UMC Electronics' Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. UMC Electronics is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Looking forward, earnings per share could rise by 41.0% over the next year if the trend from the last few years continues. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The healthy cash flows are definitely as good sign, though so we wouldn't panic just yet, especially with the earnings growing.

See our latest analysis for UMC Electronics

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 ¥22.30 in 2015 to the most recent total annual payment of ¥10.00. Doing the maths, this is a decline of about 7.7% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Company Could Face Some Challenges Growing The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. It's encouraging to see that UMC Electronics has been growing its earnings per share at 41% a year over the past five years. The company hasn't been turning a profit, but it running in the right direction. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for UMC Electronics (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.