Read This Before Considering Chiu Ting Machinery Co., Ltd. (TWSE:1539) For Its Upcoming NT$0.60 Dividend

Chiu Ting Machinery Co., Ltd. (TWSE:1539) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase Chiu Ting Machinery's shares on or after the 26th of August, you won't be eligible to receive the dividend, when it is paid on the 20th of September.

The company's next dividend payment will be NT$0.60 per share, on the back of last year when the company paid a total of NT$0.60 to shareholders. Calculating the last year's worth of payments shows that Chiu Ting Machinery has a trailing yield of 2.5% on the current share price of NT$24.35. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Chiu Ting Machinery

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Chiu Ting Machinery paid out a comfortable 36% of its profit last year. 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. It paid out more than half (64%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Chiu Ting Machinery's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Chiu Ting Machinery paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Chiu Ting Machinery, with earnings per share up 2.4% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chiu Ting Machinery's dividend payments per share have declined at 4.3% per year on average over the past nine years, which is uninspiring. Chiu Ting Machinery is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Has Chiu Ting Machinery got what it takes to maintain its dividend payments? Earnings per share have been growing at a steady rate, and Chiu Ting Machinery paid out less than half its profits and more than half its free cash flow as dividends over the last year. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

In light of that, while Chiu Ting Machinery has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Chiu Ting Machinery that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.