Is It Smart To Buy Chien Kuo Construction Co., Ltd. (TWSE:5515) Before It Goes Ex-Dividend?

Readers hoping to buy Chien Kuo Construction Co., Ltd. (TWSE:5515) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Chien Kuo Construction's shares before the 4th of July to receive the dividend, which will be paid on the 31st of July.

The company's next dividend payment will be NT$1.00 per share, on the back of last year when the company paid a total of NT$1.00 to shareholders. Based on the last year's worth of payments, Chien Kuo Construction has a trailing yield of 4.3% on the current stock price of NT$23.20. If you buy this business for its dividend, you should have an idea of whether Chien Kuo Construction's dividend is reliable and sustainable. So we need to investigate whether Chien Kuo Construction can afford its dividend, and if the dividend could grow.

View our latest analysis for Chien Kuo Construction

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Chien Kuo Construction paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Chien Kuo Construction generated enough free cash flow to afford its dividend. Luckily it paid out just 19% of its free cash flow last year.

It's positive to see that Chien Kuo Construction's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Chien Kuo Construction paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Chien Kuo Construction's earnings have been skyrocketing, up 25% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Chien Kuo Construction could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Chien Kuo Construction dividends are largely the same as they were 10 years ago.

The Bottom Line

From a dividend perspective, should investors buy or avoid Chien Kuo Construction? We like Chien Kuo Construction's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Chien Kuo Construction looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Chien Kuo Construction for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Chien Kuo Construction and you should be aware of them before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com