Tainan Enterprise (Cayman) (TWSE:5906) Is Paying Out A Dividend Of NT$1.50

Tainan Enterprise (Cayman) Co., Limited (TWSE:5906) will pay a dividend of NT$1.50 on the 8th of October. The dividend yield is 2.4% based on this payment, which is a little bit low compared to the other companies in the industry.

View our latest analysis for Tainan Enterprise (Cayman)

Tainan Enterprise (Cayman)'s Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, Tainan Enterprise (Cayman) was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share could rise by 36.5% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 64%, which is in the range that makes us comfortable with the sustainability of the dividend.

Tainan Enterprise (Cayman) Is Still Building Its Track Record

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2021, the annual payment back then was NT$0.18, compared to the most recent full-year payment of NT$1.50. This implies that the company grew its distributions at a yearly rate of about 103% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Tainan Enterprise (Cayman) has grown earnings per share at 37% per year over the past five years. Tainan Enterprise (Cayman) is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Tainan Enterprise (Cayman)'s payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Tainan Enterprise (Cayman) has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Tainan Enterprise (Cayman) not quite the opportunity you were looking for? Why not check out our selection of top 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.