San Shing Fastech (TWSE:5007) Is Due To Pay A Dividend Of NT$3.00

The board of San Shing Fastech Corp. (TWSE:5007) has announced that it will pay a dividend on the 18th of April, with investors receiving NT$3.00 per share. The dividend yield will be 5.3% based on this payment which is still above the industry average.

See our latest analysis for San Shing Fastech

San Shing Fastech's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, San Shing Fastech was paying out quite a large proportion of both earnings and cash flow, with the dividend being 156% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS could expand by 4.0% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 81%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

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$1.58 in 2015 to the most recent total annual payment of NT$3.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. San Shing Fastech might have put its house in order since then, but we remain cautious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 4.0% a year for the past five years, which isn't massive but still better than seeing them shrink. Slow growth and a high payout ratio could mean that San Shing Fastech has maxed out the amount that it has been able to pay to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

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 San Shing Fastech that investors should know about before committing capital to this stock. Is San Shing Fastech not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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