Don't Buy Quang Viet Enterprise Co., Ltd. (TWSE:4438) For Its Next Dividend Without Doing These Checks

Quang Viet Enterprise Co., Ltd. (TWSE:4438) stock is about to trade ex-dividend in four 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Quang Viet Enterprise's shares on or after the 27th of August will not receive the dividend, which will be paid on the 26th of September.

The company's next dividend payment will be NT$5.20 per share. Last year, in total, the company distributed NT$5.20 to shareholders. Last year's total dividend payments show that Quang Viet Enterprise has a trailing yield of 4.6% on the current share price of NT$112.00. If you buy this business for its dividend, you should have an idea of whether Quang Viet Enterprise's dividend is reliable and sustainable. So we need to investigate whether Quang Viet Enterprise can afford its dividend, and if the dividend could grow.

View our latest analysis for Quang Viet Enterprise

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 81% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 60% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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 Quang Viet Enterprise paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Quang Viet Enterprise's earnings per share have been shrinking at 4.1% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Quang Viet Enterprise has seen its dividend decline 4.0% per annum on average over the past eight years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Is Quang Viet Enterprise worth buying for its dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

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 Quang Viet Enterprise. Our analysis shows 2 warning signs for Quang Viet Enterprise that we strongly recommend you have a look at before investing in the company.

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.