Simple Mart Retail Co., Ltd. (TWSE:2945) Will Pay A NT$1.20 Dividend In Four Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Simple Mart Retail Co., Ltd. (TWSE:2945) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Simple Mart Retail investors that purchase the stock on or after the 17th of July will not receive the dividend, which will be paid on the 16th of August.

The company's upcoming dividend is NT$1.20 a share, following on from the last 12 months, when the company distributed a total of NT$0.73 per share to shareholders. Calculating the last year's worth of payments shows that Simple Mart Retail has a trailing yield of 1.7% on the current share price of NT$43.80. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Simple Mart Retail can afford its dividend, and if the dividend could grow.

See our latest analysis for Simple Mart Retail

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. Simple Mart Retail paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Simple Mart Retail generated enough free cash flow to afford its dividend. It paid out 3.8% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Simple Mart Retail'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 Simple Mart Retail paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Simple Mart Retail's earnings per share have dropped 11% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Simple Mart Retail has seen its dividend decline 22% per annum on average over the past five years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Has Simple Mart Retail got what it takes to maintain its dividend payments? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. In summary, while it has some positive characteristics, we're not inclined to race out and buy Simple Mart Retail today.

If you're not too concerned about Simple Mart Retail's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For instance, we've identified 3 warning signs for Simple Mart Retail (1 is concerning) you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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