Taiwan Fu Hsing IndustrialLtd (TWSE:9924) Could Be A Buy For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Taiwan Fu Hsing Industrial Co.,Ltd. (TWSE:9924) is about to trade 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 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 Taiwan Fu Hsing IndustrialLtd's shares before the 12th of June in order to be eligible for the dividend, which will be paid on the 4th of July.

The company's next dividend payment will be NT$3.00 per share, and in the last 12 months, the company paid a total of NT$3.00 per share. Calculating the last year's worth of payments shows that Taiwan Fu Hsing IndustrialLtd has a trailing yield of 5.3% on the current share price of NT$57.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Taiwan Fu Hsing IndustrialLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Taiwan Fu Hsing IndustrialLtd paid out 52% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 46% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Taiwan Fu Hsing IndustrialLtd 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Taiwan Fu Hsing IndustrialLtd earnings per share are up 9.6% per annum over the last five years. Decent historical earnings per share growth suggests Taiwan Fu Hsing IndustrialLtd has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Taiwan Fu Hsing IndustrialLtd has lifted its dividend by approximately 7.2% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Taiwan Fu Hsing IndustrialLtd for the upcoming dividend? Earnings per share growth has been modest and Taiwan Fu Hsing IndustrialLtd paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. To summarise, Taiwan Fu Hsing IndustrialLtd looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Taiwan Fu Hsing IndustrialLtd has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 1 warning sign for Taiwan Fu Hsing IndustrialLtd you should know about.

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.