It Might Not Be A Great Idea To Buy Chun Yu Works & Co., Ltd. (TPE:2012) For Its Next Dividend

By
Simply Wall St
Published
March 21, 2021
TWSE:2012
Source: Shutterstock

Chun Yu Works & Co., Ltd. (TPE:2012) is about to trade ex-dividend in the next three days. Investors can purchase shares before the 26th of March in order to be eligible for this dividend, which will be paid on the 23rd of April.

Chun Yu Works's upcoming dividend is NT$0.60 a share, following on from the last 12 months, when the company distributed a total of NT$1.20 per share to shareholders. Last year's total dividend payments show that Chun Yu Works has a trailing yield of 6.1% on the current share price of NT$19.7. If you buy this business for its dividend, you should have an idea of whether Chun Yu Works's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Chun Yu Works

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. Chun Yu Works distributed an unsustainably high 160% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Chun Yu Works generated enough free cash flow to afford its dividend. Dividends consumed 53% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Chun Yu Works's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Chun Yu Works paid out over the last 12 months.

historic-dividend
TSEC:2012 Historic Dividend March 22nd 2021

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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Chun Yu Works earnings per share are up 6.1% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Chun Yu Works has delivered 13% dividend growth per year on average over the past seven years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Chun Yu Works for the upcoming dividend? While earnings per share have been growing slowly, Chun Yu Works is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Chun Yu Works.

With that being said, if you're still considering Chun Yu Works as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Chun Yu Works is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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