Don't Race Out To Buy C Sun Mfg Ltd. (TWSE:2467) Just Because It's Going Ex-Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see C Sun Mfg Ltd. (TWSE:2467) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, C Sun Mfg investors that purchase the stock on or after the 30th of May will not receive the dividend, which will be paid on the 21st of June.

The company's next dividend payment will be NT$3.00 per share, and in the last 12 months, the company paid a total of NT$3.00 per share. Based on the last year's worth of payments, C Sun Mfg stock has a trailing yield of around 2.2% on the current share price of NT$138.50. 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! So we need to investigate whether C Sun Mfg can afford its dividend, and if the dividend could grow.

See our latest analysis for C Sun Mfg

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. Its dividend payout ratio is 87% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether C Sun Mfg generated enough free cash flow to afford its dividend. It paid out more than half (56%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that C Sun Mfg'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 C Sun Mfg paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that C Sun Mfg's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, C Sun Mfg has lifted its dividend by approximately 7.7% a year on average.

The Bottom Line

Should investors buy C Sun Mfg for the upcoming dividend? While earnings per share are flat, at least C Sun Mfg has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. It's not that we think C Sun Mfg is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in C Sun Mfg and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 2 warning signs for C Sun Mfg (of which 1 shouldn't be ignored!) you should know about.

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.