Kung Long Batteries IndustrialLtd (TWSE:1537) Has Announced That Its Dividend Will Be Reduced To NT$7.00

Kung Long Batteries Industrial Co.,Ltd's (TWSE:1537) dividend is being reduced from last year's payment covering the same period to NT$7.00 on the 10th of September. However, the dividend yield of 4.8% is still a decent boost to shareholder returns.

Check out our latest analysis for Kung Long Batteries IndustrialLtd

Kung Long Batteries IndustrialLtd's 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, Kung Long Batteries IndustrialLtd's dividend made up quite a large proportion of earnings but only 73% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

If the company can't turn things around, EPS could fall by 7.8% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 93% in the next 12 months which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of NT$5.50 in 2014 to the most recent total annual payment of NT$7.00. This implies that the company grew its distributions at a yearly rate of about 2.4% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Kung Long Batteries IndustrialLtd's earnings per share has fallen at approximately 7.8% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

Our Thoughts On Kung Long Batteries IndustrialLtd's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Kung Long Batteries IndustrialLtd has 2 warning signs (and 1 which is significant) we think you should know about. Is Kung Long Batteries IndustrialLtd not quite the opportunity you were looking for? Why not check out 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.