Here's Why We're Wary Of Buying I-Sheng Electric Wire & Cable's (TWSE:6115) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that I-Sheng Electric Wire & Cable Co., Ltd. (TWSE:6115) is about to go ex-dividend in just three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase I-Sheng Electric Wire & Cable's shares on or after the 5th of July will not receive the dividend, which will be paid on the 2nd of August.

The company's next dividend payment will be NT$3.00 per share, on the back of last year when the company paid a total of NT$3.00 to shareholders. Last year's total dividend payments show that I-Sheng Electric Wire & Cable has a trailing yield of 5.2% on the current share price of NT$58.00. If you buy this business for its dividend, you should have an idea of whether I-Sheng Electric Wire & Cable's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for I-Sheng Electric Wire & Cable

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. I-Sheng Electric Wire & Cable paid out 92% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 121% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

I-Sheng Electric Wire & Cable does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Cash is slightly more important than profit from a dividend perspective, but given I-Sheng Electric Wire & Cable's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit I-Sheng Electric Wire & Cable paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at I-Sheng Electric Wire & Cable, with earnings per share up 3.0% on average over the last five years. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. I-Sheng Electric Wire & Cable's dividend payments per share have declined at 0.6% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Has I-Sheng Electric Wire & Cable got what it takes to maintain its dividend payments? I-Sheng Electric Wire & Cable is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. It's not that we think I-Sheng Electric Wire & Cable is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering I-Sheng Electric Wire & Cable as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for I-Sheng Electric Wire & Cable that we recommend you consider before investing in the business.

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