Chiu Ting Machinery's (TWSE:1539) Shareholders Will Receive A Smaller Dividend Than Last Year

Chiu Ting Machinery Co., Ltd. (TWSE:1539) is reducing its dividend from last year's comparable payment to NT$0.60 on the 20th of September. Despite the cut, the dividend yield of 2.6% will still be comparable to other companies in the industry.

Check out our latest analysis for Chiu Ting Machinery

Chiu Ting Machinery's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, Chiu Ting Machinery's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Unless the company can turn things around, EPS could fall by 2.6% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 39%, which is definitely feasible to continue.

Chiu Ting Machinery's Dividend Has Lacked Consistency

Chiu Ting Machinery has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2015, the dividend has gone from NT$0.89 total annually to NT$0.60. Doing the maths, this is a decline of about 4.3% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Chiu Ting Machinery's EPS has declined at around 2.6% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On Chiu Ting Machinery's Dividend

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 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for Chiu Ting Machinery that investors need to be conscious of moving forward. Is Chiu Ting Machinery 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.