Hwa Fong Rubber Industrial (TWSE:2109) Will Pay A Dividend Of NT$0.70

The board of Hwa Fong Rubber Industrial Co., Ltd. (TWSE:2109) has announced that it will pay a dividend of NT$0.70 per share on the 21st of October. This takes the dividend yield to 6.3%, which shareholders will be pleased with.

See our latest analysis for Hwa Fong Rubber Industrial

Hwa Fong Rubber Industrial's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite comfortably covered by Hwa Fong Rubber Industrial's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 81% indicates it is more focused on returning cash to shareholders than growing the business.

If the trend of the last few years continues, EPS will grow by 28.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 annual payment during the last 10 years was NT$0.327 in 2014, and the most recent fiscal year payment was NT$1.20. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Hwa Fong Rubber Industrial has impressed us by growing EPS at 29% per year over the past five years. Hwa Fong Rubber Industrial is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Hwa Fong Rubber Industrial's Dividend

Overall, we always like to see the dividend being raised, but we don't think Hwa Fong Rubber Industrial will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Hwa Fong Rubber Industrial that you should be aware of before investing. 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.