Kung Long Batteries IndustrialLtd's (TWSE:1537) Dividend Is Being Reduced To NT$7.00

Kung Long Batteries Industrial Co.,Ltd (TWSE:1537) is reducing its dividend from last year's comparable payment to NT$7.00 on the 10th of September. This means the annual payment is 4.8% of the current stock price, which is above the average for the industry.

See our latest analysis for Kung Long Batteries IndustrialLtd

Kung Long Batteries IndustrialLtd's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. 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. This leaves plenty of cash for reinvestment into the business.

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. Since 2014, the annual payment back then was NT$5.50, compared to the most recent full-year payment of NT$7.00. This means that it has been growing its distributions at 2.4% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. 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. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Kung Long Batteries IndustrialLtd you should be aware of, and 1 of them is a bit concerning. 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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