G-SHANK Enterprise Co., Ltd. (TWSE:2476) Pays A NT$2.47665862 Dividend In Just Four Days

G-SHANK Enterprise Co., Ltd. (TWSE:2476) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. In other words, investors can purchase G-SHANK Enterprise's shares before the 13th of August in order to be eligible for the dividend, which will be paid on the 9th of September.

The company's next dividend payment will be NT$2.47665862 per share, on the back of last year when the company paid a total of NT$2.50 to shareholders. Calculating the last year's worth of payments shows that G-SHANK Enterprise has a trailing yield of 2.6% on the current share price of NT$96.90. If you buy this business for its dividend, you should have an idea of whether G-SHANK Enterprise's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for G-SHANK Enterprise

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. G-SHANK Enterprise is paying out an acceptable 56% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 308% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since G-SHANK Enterprise is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

G-SHANK Enterprise does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While G-SHANK Enterprise's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to G-SHANK Enterprise's ability to maintain its dividend.

Click here to see how much of its profit G-SHANK Enterprise paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see G-SHANK Enterprise's earnings have been skyrocketing, up 21% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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, G-SHANK Enterprise has increased its dividend at approximately 3.7% 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.

To Sum It Up

Has G-SHANK Enterprise got what it takes to maintain its dividend payments? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note G-SHANK Enterprise paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, it's hard to get excited about G-SHANK Enterprise from a dividend perspective.

With that being said, if dividends aren't your biggest concern with G-SHANK Enterprise, you should know about the other risks facing this business. Every company has risks, and we've spotted 3 warning signs for G-SHANK Enterprise (of which 1 can't be ignored!) you should know about.

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.