Is It Smart To Buy Y.C.C. Parts Mfg. Co., Ltd. (TWSE:1339) Before It Goes Ex-Dividend?

Y.C.C. Parts Mfg. Co., Ltd. (TWSE:1339) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Y.C.C. Parts Mfg's shares on or after the 21st of August will not receive the dividend, which will be paid on the 12th of September.

The company's next dividend payment will be NT$3.00 per share. Last year, in total, the company distributed NT$3.00 to shareholders. Calculating the last year's worth of payments shows that Y.C.C. Parts Mfg has a trailing yield of 4.9% on the current share price of NT$60.80. If you buy this business for its dividend, you should have an idea of whether Y.C.C. Parts Mfg's dividend is reliable and sustainable. So we need to investigate whether Y.C.C. Parts Mfg can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Y.C.C. Parts Mfg

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Y.C.C. Parts Mfg's payout ratio is modest, at just 44% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 50% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Y.C.C. Parts Mfg paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Y.C.C. Parts Mfg's earnings per share have been growing at 10% a year for the past five years. Y.C.C. Parts Mfg is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Y.C.C. Parts Mfg has delivered an average of 7.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Y.C.C. Parts Mfg an attractive dividend stock, or better left on the shelf? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Y.C.C. Parts Mfg looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Curious about whether Y.C.C. Parts Mfg has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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.