Goodway Machine (TWSE:1583) Is Increasing Its Dividend To NT$4.00

Goodway Machine Corp. (TWSE:1583) will increase its dividend from last year's comparable payment on the 6th of September to NT$4.00. This will take the annual payment to 5.9% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Goodway Machine

Goodway Machine's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 72% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

If the company can't turn things around, EPS could fall by 0.8% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 77% 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 annual payment during the last 10 years was NT$1.79 in 2014, and the most recent fiscal year payment was NT$4.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.3% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Goodway Machine's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Goodway Machine will make a great income stock. 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 be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Goodway Machine that investors should know about before committing capital to this stock. Is Goodway Machine not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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