Do These 3 Checks Before Buying National Aerospace Fasteners Corporation (TWSE:3004) For Its Upcoming Dividend

It looks like National Aerospace Fasteners Corporation (TWSE:3004) is about to go 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. Meaning, you will need to purchase National Aerospace Fasteners' shares before the 21st of March to receive the dividend, which will be paid on the 19th of April.

The company's next dividend payment will be NT$2.48363 per share. Last year, in total, the company distributed NT$2.48 to shareholders. Based on the last year's worth of payments, National Aerospace Fasteners stock has a trailing yield of around 2.6% on the current share price of NT$97.00. If you buy this business for its dividend, you should have an idea of whether National Aerospace Fasteners's dividend is reliable and sustainable. So we need to investigate whether National Aerospace Fasteners can afford its dividend, and if the dividend could grow.

Check out our latest analysis for National Aerospace Fasteners

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. That's why it's good to see National Aerospace Fasteners paying out a modest 43% of its earnings. A useful secondary check can be to evaluate whether National Aerospace Fasteners generated enough free cash flow to afford its dividend. The company paid out 100% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

National Aerospace Fasteners paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to National Aerospace Fasteners's ability to maintain its dividend.

Click here to see how much of its profit National Aerospace Fasteners 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that National Aerospace Fasteners's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, National Aerospace Fasteners has lifted its dividend by approximately 9.5% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid National Aerospace Fasteners? It's disappointing to see earnings per share have fallen slightly, even though National Aerospace Fasteners is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering National Aerospace Fasteners as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 4 warning signs with National Aerospace Fasteners (at least 2 which are concerning), and understanding these should be part of your investment process.

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.