Dividend Investors: Don't Be Too Quick To Buy Fulgent Sun International (Holding) Co., Ltd. (TWSE:9802) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Fulgent Sun International (Holding) Co., Ltd. (TWSE:9802) is about to go ex-dividend in just 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Fulgent Sun International (Holding)'s shares before the 18th of March in order to receive the dividend, which the company will pay on the 18th of April.

The company's next dividend payment will be NT$1.900147 per share. Last year, in total, the company distributed NT$5.00 to shareholders. Last year's total dividend payments show that Fulgent Sun International (Holding) has a trailing yield of 3.8% on the current share price of NT$136.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Fulgent Sun International (Holding)

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fulgent Sun International (Holding) paid out more than half (71%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out dividends equivalent to 396% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Fulgent Sun International (Holding) intends to continue funding this dividend, or if it could be forced to cut the payment.

While Fulgent Sun International (Holding)'s dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Fulgent Sun International (Holding) to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Fulgent Sun International (Holding)'s earnings are down 2.5% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Fulgent Sun International (Holding) has lifted its dividend by approximately 9.8% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

From a dividend perspective, should investors buy or avoid Fulgent Sun International (Holding)? Fulgent Sun International (Holding) had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Fulgent Sun International (Holding) as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for Fulgent Sun International (Holding) that you should be aware of before investing in their shares.

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.