Giant Manufacturing Co., Ltd. (TWSE:9921) Will Pay A NT$5.00 Dividend In Three Days

It looks like Giant Manufacturing Co., Ltd. (TWSE:9921) is about to go ex-dividend in the next three 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Giant Manufacturing's shares before the 23rd of August in order to be eligible for the dividend, which will be paid on the 19th of September.

The company's next dividend payment will be NT$5.00 per share, on the back of last year when the company paid a total of NT$5.00 to shareholders. Looking at the last 12 months of distributions, Giant Manufacturing has a trailing yield of approximately 2.1% on its current stock price of NT$239.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Giant Manufacturing can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Giant Manufacturing

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Giant Manufacturing is paying out an acceptable 64% of its profit, a common payout level among 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. The good news is it paid out just 22% of its free cash flow in the last year.

It's positive to see that Giant Manufacturing'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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Giant Manufacturing's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Giant Manufacturing's dividend payments per share have declined at 1.8% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Should investors buy Giant Manufacturing for the upcoming dividend? It's unfortunate that earnings per share have not grown, and we'd note that Giant Manufacturing is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. 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.

So while Giant Manufacturing looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Giant Manufacturing and you should be aware of this before buying any 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.