Why You Might Be Interested In Cheng Shin Rubber Ind. Co., Ltd. (TWSE:2105) For Its Upcoming Dividend

Cheng Shin Rubber Ind. Co., Ltd. (TWSE:2105) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Cheng Shin Rubber Ind's shares before the 5th of June in order to receive the dividend, which the company will pay on the 10th of July.

The company's next dividend payment will be NT$2.00 per share, and in the last 12 months, the company paid a total of NT$2.00 per share. Looking at the last 12 months of distributions, Cheng Shin Rubber Ind has a trailing yield of approximately 3.5% on its current stock price of NT$57.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Cheng Shin Rubber Ind

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. Its dividend payout ratio is 83% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Cheng Shin Rubber Ind generated enough free cash flow to afford its dividend. Luckily it paid out just 24% of its free cash flow last year.

It's positive to see that Cheng Shin Rubber Ind's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Cheng Shin Rubber Ind's earnings per share have risen 17% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Cheng Shin Rubber Ind has delivered an average of 4.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Cheng Shin Rubber Ind is keeping back more of its profits to grow the business.

Final Takeaway

Should investors buy Cheng Shin Rubber Ind for the upcoming dividend? We like Cheng Shin Rubber Ind's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Cheng Shin Rubber Ind has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Cheng Shin Rubber Ind has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.