Cryomax Cooling System's (TWSE:1587) Shareholders Will Receive A Smaller Dividend Than Last Year

The board of Cryomax Cooling System Corp. (TWSE:1587) has announced that the dividend on 28th of June will be reduced by 50% from last year's NT$1.00 to NT$0.5004. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.

View our latest analysis for Cryomax Cooling System

Cryomax Cooling System's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Cryomax Cooling System's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share could rise by 21.0% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

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. Since 2014, the annual payment back then was NT$0.41, compared to the most recent full-year payment of NT$1.00. This means that it has been growing its distributions at 9.3% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Cryomax Cooling System might have put its house in order since then, but we remain cautious.

Cryomax Cooling System's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Cryomax Cooling System has been growing its earnings per share at 21% a year over the past five years. While EPS is growing rapidly, Cryomax Cooling System paid out a very high 117% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Our Thoughts On Cryomax Cooling System's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Cryomax Cooling System is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 4 warning signs for Cryomax Cooling System that investors should take into consideration. 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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