Tong Ming Enterprise (TWSE:5538) Is Reducing Its Dividend To NT$1.00

Tong Ming Enterprise Co., Ltd. (TWSE:5538) has announced that on 8th of August, it will be paying a dividend ofNT$1.00, which a reduction from last year's comparable dividend. This means that the annual payment will be 3.1% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Tong Ming Enterprise

Tong Ming Enterprise Is Paying Out More Than It Is Earning

We aren't too impressed by dividend yields unless they can be sustained over time. The last payment made up 87% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

If the company can't turn things around, EPS could fall by 16.4% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 105%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was NT$1.25, compared to the most recent full-year payment of NT$1.00. This works out to be a decline of approximately 2.2% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Tong Ming Enterprise's EPS has fallen by approximately 16% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Our Thoughts On Tong Ming Enterprise's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Tong Ming Enterprise you should be aware of, and 1 of them can't be ignored. 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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