Formosa International Hotels' (TWSE:2707) Upcoming Dividend Will Be Larger Than Last Year's

The board of Formosa International Hotels Corporation (TWSE:2707) has announced that it will be paying its dividend of NT$11.38 on the 11th of July, an increased payment from last year's comparable dividend. This makes the dividend yield 5.0%, which is above the industry average.

View our latest analysis for Formosa International Hotels

Formosa International Hotels' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

EPS is set to grow by 11.3% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 90% which is a bit high but can definitely be sustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of NT$6.94 in 2014 to the most recent total annual payment of NT$11.38. This works out to be a compound annual growth rate (CAGR) of approximately 5.1% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Formosa International Hotels might have put its house in order since then, but we remain cautious.

Formosa International Hotels May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Formosa International Hotels' EPS was effectively flat over the past five years, which could stop the company from paying more every year. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

Formosa International Hotels' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Formosa International Hotels that investors should take into consideration. Is Formosa International Hotels not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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