Aerospace Industrial Development (TWSE:2634) Is Increasing Its Dividend To NT$1.42

Aerospace Industrial Development Corporation (TWSE:2634) will increase its dividend from last year's comparable payment on the 8th of August to NT$1.42. The payment will take the dividend yield to 2.6%, which is in line with the average for the industry.

Check out our latest analysis for Aerospace Industrial Development

Aerospace Industrial Development's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Aerospace Industrial Development's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 17.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable range.

Aerospace Industrial Development's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of NT$0.887 in 2015 to the most recent total annual payment of NT$1.42. This means that it has been growing its distributions at 5.4% per annum 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. Earnings per share has been crawling upwards at 2.5% per year. Growth of 2.5% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Aerospace Industrial Development's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Aerospace Industrial Development that you should be aware of before investing. Is Aerospace Industrial Development not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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