Why It Might Not Make Sense To Buy evertex fabrinology limited (TWSE:1470) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that evertex fabrinology limited (TWSE:1470) is about to go ex-dividend in just three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase evertex fabrinology's shares before the 15th of July to receive the dividend, which will be paid on the 16th of August.

The company's next dividend payment will be NT$0.58 per share, on the back of last year when the company paid a total of NT$0.58 to shareholders. Based on the last year's worth of payments, evertex fabrinology stock has a trailing yield of around 2.8% on the current share price of NT$20.65. If you buy this business for its dividend, you should have an idea of whether evertex fabrinology's dividend is reliable and sustainable. As a result, readers should always check whether evertex fabrinology has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for evertex fabrinology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. evertex fabrinology paid out 110% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and evertex fabrinology fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit evertex fabrinology paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that evertex fabrinology's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, evertex fabrinology has lifted its dividend by approximately 6.8% a year on average.

To Sum It Up

Is evertex fabrinology an attractive dividend stock, or better left on the shelf? Along with flat earnings per share, evertex fabrinology paid out an uncomfortably high percentage of its earnings. It paid out a lower percentage of its free cash flow. It's not that we think evertex fabrinology is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with evertex fabrinology. For instance, we've identified 3 warning signs for evertex fabrinology (1 is concerning) 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.

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