Here's What We Like About CHANG TYPE Industrial's (TWSE:1541) Upcoming Dividend

CHANG TYPE Industrial Co., Ltd. (TWSE:1541) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase CHANG TYPE Industrial's shares before the 27th of August to receive the dividend, which will be paid on the 20th of September.

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. Last year's total dividend payments show that CHANG TYPE Industrial has a trailing yield of 1.6% on the current share price of NT$31.50. If you buy this business for its dividend, you should have an idea of whether CHANG TYPE Industrial's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for CHANG TYPE Industrial

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. CHANG TYPE Industrial is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Luckily it paid out just 11% of its free cash flow last year.

It's positive to see that CHANG TYPE Industrial's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit CHANG TYPE Industrial paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see CHANG TYPE Industrial's earnings have been skyrocketing, up 21% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, CHANG TYPE Industrial looks like a promising growth company.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CHANG TYPE Industrial's dividend payments per share have declined at 13% per year on average over the past nine years, which is uninspiring. CHANG TYPE Industrial is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is CHANG TYPE Industrial worth buying for its dividend? CHANG TYPE Industrial has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past nine years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about CHANG TYPE Industrial, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 2 warning signs for CHANG TYPE Industrial that we strongly recommend you have a look at before investing in the company.

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.