Waffer Technology (TWSE:6235) Is Increasing Its Dividend To NT$1.68

Waffer Technology Corporation's (TWSE:6235) dividend will be increasing from last year's payment of the same period to NT$1.68 on 26th of April. Even though the dividend went up, the yield is still quite low at only 1.5%.

View our latest analysis for Waffer Technology

Waffer Technology's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Waffer Technology's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 10%, so there isn't too much pressure on the dividend.

Waffer Technology's Dividend Has Lacked Consistency

It's comforting to see that Waffer Technology has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the dividend has gone from NT$1.99 total annually to NT$1.68. The dividend has shrunk at around 2.4% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Waffer Technology has grown earnings per share at 33% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Waffer Technology could prove to be a strong dividend payer.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Waffer Technology's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Waffer Technology that investors should take into consideration. Is Waffer Technology not quite the opportunity you were looking for? Why not check out our selection of top 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.