Here's Why We're Wary Of Buying Symtek Automation Asia's (TWSE:6438) For Its Upcoming Dividend

Symtek Automation Asia Co., Ltd. (TWSE:6438) is about to trade ex-dividend in the next 2 days. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Symtek Automation Asia's shares before the 5th of December in order to be eligible for the dividend, which will be paid on the 2nd of January.

The company's next dividend payment will be NT$1.943497 per share, on the back of last year when the company paid a total of NT$4.00 to shareholders. Based on the last year's worth of payments, Symtek Automation Asia stock has a trailing yield of around 1.9% on the current share price of NT$212.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Symtek Automation Asia has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Symtek Automation Asia

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. It paid out 89% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. 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 last year, it paid out dividends equivalent to 201% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Symtek Automation Asia intends to continue funding this dividend, or if it could be forced to cut the payment.

While Symtek Automation Asia's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Symtek Automation Asia's ability to maintain its dividend.

Click here to see how much of its profit Symtek Automation Asia 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. With that in mind, we're encouraged by the steady growth at Symtek Automation Asia, with earnings per share up 4.6% on average over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Symtek Automation Asia has seen its dividend decline 3.5% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Has Symtek Automation Asia got what it takes to maintain its dividend payments? Symtek Automation Asia is paying out a reasonable percentage of its income and an uncomfortably high 201% of its cash flow as dividends. At least earnings per share have been growing steadily. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Symtek Automation Asia despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 3 warning signs for Symtek Automation Asia (1 can't be ignored!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.