Income Investors Should Know That FuSheng Precision Co., Ltd. (TWSE:6670) Goes Ex-Dividend Soon

FuSheng Precision Co., Ltd. (TWSE:6670) 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. Therefore, if you purchase FuSheng Precision's shares on or after the 16th of July, you won't be eligible to receive the dividend, when it is paid on the 2nd of August.

The company's next dividend payment will be NT$12.309845 per share, on the back of last year when the company paid a total of NT$12.50 to shareholders. Based on the last year's worth of payments, FuSheng Precision stock has a trailing yield of around 4.2% on the current share price of NT$298.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for FuSheng Precision

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. FuSheng Precision is paying out an acceptable 63% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether FuSheng Precision generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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 FuSheng Precision 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see FuSheng Precision earnings per share are up 3.3% per annum over the last five years. A high payout ratio of 63% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, FuSheng Precision could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last six years, FuSheng Precision has lifted its dividend by approximately 5.6% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is FuSheng Precision an attractive dividend stock, or better left on the shelf? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

With that being said, if dividends aren't your biggest concern with FuSheng Precision, you should know about the other risks facing this business. For example, we've found 1 warning sign for FuSheng Precision that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking 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.

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