Nan Liu Enterprise (TWSE:6504) Is Increasing Its Dividend To NT$1.10

The board of Nan Liu Enterprise Co., Ltd. (TWSE:6504) has announced that it will be paying its dividend of NT$1.10 on the 14th of October, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 1.6%, which is below the industry average.

See our latest analysis for Nan Liu Enterprise

Nan Liu Enterprise's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. The last dividend was quite easily covered by Nan Liu Enterprise's earnings. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 21.6% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 57%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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$2.20 in 2014, and the most recent fiscal year payment was NT$1.10. This works out to be a decline of approximately 6.7% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 22% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Nan Liu Enterprise's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Nan Liu Enterprise that you should be aware of before investing. Is Nan Liu Enterprise 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.