Why You Might Be Interested In Kenda Rubber Industrial Co. Ltd. (TWSE:2106) For Its Upcoming Dividend

Kenda Rubber Industrial Co. Ltd. (TWSE:2106) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. Thus, you can purchase Kenda Rubber Industrial's shares before the 17th of June in order to receive the dividend, which the company will pay on the 12th of July.

The company's next dividend payment will be NT$1.00 per share, on the back of last year when the company paid a total of NT$1.00 to shareholders. Calculating the last year's worth of payments shows that Kenda Rubber Industrial has a trailing yield of 3.0% on the current share price of NT$33.65. If you buy this business for its dividend, you should have an idea of whether Kenda Rubber Industrial's dividend is reliable and sustainable. So we need to investigate whether Kenda Rubber Industrial can afford its dividend, and if the dividend could grow.

View our latest analysis for Kenda Rubber Industrial

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kenda Rubber Industrial paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 12% of its free cash flow last year.

It's positive to see that Kenda Rubber Industrial'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 how much of its profit Kenda Rubber Industrial 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Kenda Rubber Industrial's earnings per share have been growing at 19% a year for the past five years. Kenda Rubber Industrial 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kenda Rubber Industrial has seen its dividend decline 2.6% per annum on average over the past 10 years, which is not great to see. Kenda Rubber Industrial is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Has Kenda Rubber Industrial got what it takes to maintain its dividend payments? Kenda Rubber Industrial's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

So while Kenda Rubber Industrial looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For instance, we've identified 2 warning signs for Kenda Rubber Industrial (1 doesn't sit too well with us) you should be aware of.

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.