Read This Before Considering Symtek Automation Asia Co., Ltd. (TWSE:6438) For Its Upcoming NT$2.50 Dividend

It looks like Symtek Automation Asia Co., Ltd. (TWSE:6438) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Symtek Automation Asia's shares before the 25th of June to receive the dividend, which will be paid on the 22nd of July.

The company's next dividend payment will be NT$2.50 per share, and in the last 12 months, the company paid a total of NT$5.00 per share. Based on the last year's worth of payments, Symtek Automation Asia has a trailing yield of 4.4% on the current stock price of NT$114.50. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View 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. Symtek Automation Asia is paying out an acceptable 65% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Symtek Automation Asia generated enough free cash flow to afford its dividend. Over the past year it paid out 156% 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.

Symtek Automation Asia 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.

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 the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Symtek Automation Asia's earnings per share have been growing at 15% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Symtek Automation Asia's dividend payments per share have declined at 1.3% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Has Symtek Automation Asia got what it takes to maintain its dividend payments? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Symtek Automation Asia paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, it's hard to get excited about Symtek Automation Asia from a dividend perspective.

If you're not too concerned about Symtek Automation Asia's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Case in point: We've spotted 2 warning signs for Symtek Automation Asia you should be aware of.

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