Eurocharm Holdings (TWSE:5288) Is Increasing Its Dividend To NT$7.81

Eurocharm Holdings Co., Ltd. (TWSE:5288) has announced that it will be increasing its dividend from last year's comparable payment on the 11th of September to NT$7.81. This will take the annual payment to 3.7% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Eurocharm Holdings

Eurocharm Holdings' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Eurocharm Holdings' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 11.3% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 47% by next year, which is in a pretty sustainable range.

Eurocharm Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has gone from NT$3.50 total annually to NT$7.80. This means that it has been growing its distributions at 9.3% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Eurocharm Holdings has impressed us by growing EPS at 11% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

Eurocharm Holdings Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. Taking the debate a bit further, we've identified 1 warning sign for Eurocharm Holdings that investors need to be conscious of moving forward. 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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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.

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