Three Days Left Until Hwa Fong Rubber Industrial Co., Ltd. (TWSE:2109) Trades Ex-Dividend

Hwa Fong Rubber Industrial Co., Ltd. (TWSE:2109) stock is about to trade ex-dividend in 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Meaning, you will need to purchase Hwa Fong Rubber Industrial's shares before the 19th of September to receive the dividend, which will be paid on the 21st of October.

The company's next dividend payment will be NT$0.70 per share. Last year, in total, the company distributed NT$1.50 to shareholders. Last year's total dividend payments show that Hwa Fong Rubber Industrial has a trailing yield of 7.7% on the current share price of NT$19.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Hwa Fong Rubber Industrial can afford its dividend, and if the dividend could grow.

View our latest analysis for Hwa Fong 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. Hwa Fong Rubber Industrial is paying out an acceptable 62% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 81% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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 Hwa Fong Rubber Industrial paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Hwa Fong Rubber Industrial has grown its earnings rapidly, up 29% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Hwa Fong Rubber Industrial has increased its dividend at approximately 16% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Hwa Fong Rubber Industrial worth buying for its dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Hwa Fong Rubber Industrial is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, while it has some positive characteristics, we're not inclined to race out and buy Hwa Fong Rubber Industrial today.

While it's tempting to invest in Hwa Fong Rubber Industrial for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Hwa Fong Rubber Industrial you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.