Don't Buy San Neng Group Holdings Co., LTD. (TWSE:6671) For Its Next Dividend Without Doing These Checks

Readers hoping to buy San Neng Group Holdings Co., LTD. (TWSE:6671) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase San Neng Group Holdings' shares before the 18th of July in order to be eligible for the dividend, which will be paid on the 16th of August.

The company's next dividend payment will be NT$2.50 per share, and in the last 12 months, the company paid a total of NT$2.50 per share. Looking at the last 12 months of distributions, San Neng Group Holdings has a trailing yield of approximately 5.3% on its current stock price of NT$47.10. If you buy this business for its dividend, you should have an idea of whether San Neng Group Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for San Neng Group Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 82% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 81% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that San Neng Group Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit San Neng Group Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that San Neng Group Holdings's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. San Neng Group Holdings's dividend payments per share have declined at 3.6% per year on average over the past five years, which is uninspiring.

The Bottom Line

Should investors buy San Neng Group Holdings for the upcoming dividend? While earnings per share are flat, at least San Neng Group Holdings has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

So if you're still interested in San Neng Group Holdings despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 3 warning signs with San Neng Group Holdings (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

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.

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