Should You Buy Shihlin Electric & Engineering Corp. (TWSE:1503) For Its Upcoming Dividend?

It looks like Shihlin Electric & Engineering Corp. (TWSE:1503) is about to go ex-dividend in the next 4 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Shihlin Electric & Engineering's shares before the 24th of July in order to be eligible for the dividend, which will be paid on the 16th of August.

The company's next dividend payment will be NT$3.00 per share, and in the last 12 months, the company paid a total of NT$3.00 per share. Calculating the last year's worth of payments shows that Shihlin Electric & Engineering has a trailing yield of 1.0% on the current share price of NT$293.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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 Shihlin Electric & Engineering

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Shihlin Electric & Engineering paid out 57% of its earnings to investors last year, a normal payout level for most businesses. 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 34% of its free cash flow in the past year.

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 the company's payout ratio, plus analyst estimates of its future dividends.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Shihlin Electric & Engineering's earnings per share have risen 14% per annum over the last five years. Shihlin Electric & Engineering has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Shihlin Electric & Engineering has lifted its dividend by approximately 7.9% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Has Shihlin Electric & Engineering got what it takes to maintain its dividend payments? We like Shihlin Electric & Engineering's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Shihlin Electric & Engineering looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Wondering what the future holds for Shihlin Electric & Engineering? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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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