Hua Eng Wire & Cable Co., Ltd. (TWSE:1608) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy Hua Eng Wire & Cable Co., Ltd. (TWSE:1608) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Hua Eng Wire & Cable's shares before the 10th of July in order to receive the dividend, which the company will pay on the 15th of August.

The company's upcoming dividend is NT$1.00 a share, following on from the last 12 months, when the company distributed a total of NT$1.00 per share to shareholders. Calculating the last year's worth of payments shows that Hua Eng Wire & Cable has a trailing yield of 2.5% on the current share price of NT$39.35. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Hua Eng Wire & Cable

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Hua Eng Wire & Cable paid out a comfortable 48% of its profit last year. A useful secondary check can be to evaluate whether Hua Eng Wire & Cable generated enough free cash flow to afford its dividend. It distributed 30% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Hua Eng Wire & Cable'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 Hua Eng Wire & Cable 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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Hua Eng Wire & Cable has grown its earnings rapidly, up 21% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Hua Eng Wire & Cable has increased its dividend at approximately 3.6% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Has Hua Eng Wire & Cable got what it takes to maintain its dividend payments? It's great that Hua Eng Wire & Cable is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Hua Eng Wire & Cable looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For instance, we've identified 3 warning signs for Hua Eng Wire & Cable (1 is potentially serious) you should be aware of.

If you're in the market for strong dividend payers, we recommend checking 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com