FSP Technology's (TWSE:3015) Dividend Will Be Reduced To NT$3.20

FSP Technology Inc.'s (TWSE:3015) dividend is being reduced from last year's payment covering the same period to NT$3.20 on the 10th of July. The dividend yield of 4.8% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for FSP Technology

FSP Technology's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 95% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS could expand by 74.3% if recent trends continue. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 63% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of NT$1.80 in 2014 to the most recent total annual payment of NT$3.20. This means that it has been growing its distributions at 5.9% 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.

FSP Technology's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. FSP Technology has impressed us by growing EPS at 74% per year over the past five years. EPS has been growing well, but FSP Technology has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

FSP Technology's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We don't think FSP Technology is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 1 warning sign for FSP Technology that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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