Zeng Hsing Industrial's (TWSE:1558) Dividend Will Be Reduced To NT$3.80

Zeng Hsing Industrial Co., Ltd.'s (TWSE:1558) dividend is being reduced from last year's payment covering the same period to NT$3.80 on the 5th of September. However, the dividend yield of 3.8% still remains in a typical range for the industry.

Check out our latest analysis for Zeng Hsing Industrial

Zeng Hsing Industrial's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Zeng Hsing Industrial's dividend made up quite a large proportion of earnings but only 16% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

If the company can't turn things around, EPS could fall by 21.9% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 93%, meaning that most of the company's earnings is being paid out to shareholders.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was NT$7.14 in 2014, and the most recent fiscal year payment was NT$3.80. This works out to be a decline of approximately 6.1% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Zeng Hsing Industrial's EPS has declined at around 22% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Our Thoughts On Zeng Hsing Industrial's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Zeng Hsing Industrial you should be aware of, and 1 of them is concerning. Is Zeng Hsing Industrial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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