Read This Before Considering Far Eastern New Century Corporation (TWSE:1402) For Its Upcoming NT$1.35 Dividend

It looks like Far Eastern New Century Corporation (TWSE:1402) is about to go ex-dividend in the next three 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Far Eastern New Century's shares before the 18th of July to receive the dividend, which will be paid on the 14th of August.

The company's next dividend payment will be NT$1.35 per share, and in the last 12 months, the company paid a total of NT$1.35 per share. Looking at the last 12 months of distributions, Far Eastern New Century has a trailing yield of approximately 3.6% on its current stock price of NT$37.80. If you buy this business for its dividend, you should have an idea of whether Far Eastern New Century's dividend is reliable and sustainable. As a result, readers should always check whether Far Eastern New Century has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Far Eastern New Century

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 81% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 27% of its free cash flow in the past year.

It's positive to see that Far Eastern New Century'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Far Eastern New Century's earnings per share have dropped 8.3% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Far Eastern New Century has lifted its dividend by approximately 0.8% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid Far Eastern New Century? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. All things considered, we are not particularly enthused about Far Eastern New Century from a dividend perspective.

If you want to look further into Far Eastern New Century, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 1 warning sign for Far Eastern New Century you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.

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