We Wouldn't Be Too Quick To Buy Wisher Industrial Co., Ltd. (TWSE:1465) Before It Goes Ex-Dividend

Wisher Industrial Co., Ltd. (TWSE:1465) stock is about to trade ex-dividend in four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Wisher Industrial's shares before the 10th of September in order to be eligible for the dividend, which will be paid on the 7th of October.

The company's next dividend payment will be NT$0.50 per share, and in the last 12 months, the company paid a total of NT$0.50 per share. Calculating the last year's worth of payments shows that Wisher Industrial has a trailing yield of 3.2% on the current share price of NT$15.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Wisher Industrial can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Wisher Industrial

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Wisher Industrial is paying out an acceptable 67% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Wisher Industrial generated enough free cash flow to afford its dividend. The company paid out 91% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Wisher Industrial paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Wisher Industrial to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Wisher Industrial 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Wisher Industrial, with earnings per share up 3.2% 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past six years, Wisher Industrial has increased its dividend at approximately 3.8% 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.

The Bottom Line

Has Wisher Industrial got what it takes to maintain its dividend payments? Wisher Industrial is paying out a reasonable percentage of its income and an uncomfortably high 91% of its cash flow as dividends. At least earnings per share have been growing steadily. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Wisher Industrial as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 2 warning signs for Wisher Industrial you should be aware of.

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.