Roundtop Machinery Industries (TWSE:1540) Is Increasing Its Dividend To NT$1.10

Roundtop Machinery Industries Co., Ltd. (TWSE:1540) will increase its dividend from last year's comparable payment on the 29th of August to NT$1.10. This makes the dividend yield about the same as the industry average at 3.2%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Roundtop Machinery Industries' stock price has increased by 73% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Roundtop Machinery Industries

Roundtop Machinery Industries' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Roundtop Machinery Industries' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

EPS is set to fall by 2.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 57%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was NT$1.30 in 2014, and the most recent fiscal year payment was NT$1.10. This works out to be a decline of approximately 1.7% per year over that time. 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.

Roundtop Machinery Industries May Find It Hard To Grow The Dividend

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 Roundtop Machinery Industries' earnings per share has fallen at approximately 2.9% 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.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Roundtop Machinery Industries will make a great income stock. 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. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Roundtop Machinery Industries (1 is potentially serious!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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