Do These 3 Checks Before Buying Awea mechantronic co.,ltd (TWSE:1530) For Its Upcoming Dividend

Awea mechantronic co.,ltd (TWSE:1530) stock is about to trade ex-dividend in two days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. Therefore, if you purchase Awea mechantronicltd's shares on or after the 8th of August, you won't be eligible to receive the dividend, when it is paid on the 5th of September.

The company's upcoming dividend is NT$1.50 a share, following on from the last 12 months, when the company distributed a total of NT$1.50 per share to shareholders. Based on the last year's worth of payments, Awea mechantronicltd has a trailing yield of 4.7% on the current stock price of NT$32.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Awea mechantronicltd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Awea mechantronicltd paid out 68% of its earnings to investors last year, a normal payout level for most businesses. 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. The company paid out 92% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Awea mechantronicltd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Awea mechantronicltd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Awea mechantronicltd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Awea mechantronicltd's earnings per share have dropped 8.6% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Awea mechantronicltd's dividend payments per share have declined at 2.4% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Awea mechantronicltd? Awea mechantronicltd had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Awea mechantronicltd.

So if you're still interested in Awea mechantronicltd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Awea mechantronicltd is showing 4 warning signs in our investment analysis, and 1 of those is a bit concerning...

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.

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