National Aerospace Fasteners' (TWSE:3004) Dividend Will Be Increased To NT$2.50

National Aerospace Fasteners Corporation (TWSE:3004) has announced that it will be increasing its periodic dividend on the 19th of April to NT$2.50, which will be 145% higher than last year's comparable payment amount of NT$1.02. Although the dividend is now higher, the yield is only 1.0%, which is below the industry average.

Check out our latest analysis for National Aerospace Fasteners

National Aerospace Fasteners' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, National Aerospace Fasteners' dividend was only 19% of earnings, however it was paying out 102% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Unless the company can turn things around, EPS could fall by 0.0004% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 44%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of NT$1.00 in 2014 to the most recent total annual payment of NT$1.02. Dividend payments have grown at less than 1% a year over this period. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. National Aerospace Fasteners hasn't seen much change in its earnings per share over the last five years.

National Aerospace Fasteners' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think National Aerospace Fasteners will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for National Aerospace Fasteners (of which 2 shouldn't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.