FarGlory Hotel Co.,Ltd (TWSE:2712) Goes Ex-Dividend Soon

FarGlory Hotel Co.,Ltd (TWSE:2712) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day 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. 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. Therefore, if you purchase FarGlory HotelLtd's shares on or after the 23rd of July, you won't be eligible to receive the dividend, when it is paid on the 16th of August.

The company's next dividend payment will be NT$0.41809767 per share, on the back of last year when the company paid a total of NT$0.089 to shareholders. Last year's total dividend payments show that FarGlory HotelLtd has a trailing yield of 1.4% on the current share price of NT$29.95. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether FarGlory HotelLtd can afford its dividend, and if the dividend could grow.

Check out our latest analysis for FarGlory HotelLtd

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. It paid out 90% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. A useful secondary check can be to evaluate whether FarGlory HotelLtd generated enough free cash flow to afford its dividend. FarGlory HotelLtd paid out more free cash flow than it generated - 119%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

FarGlory HotelLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were FarGlory HotelLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit FarGlory HotelLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see FarGlory HotelLtd has grown its earnings rapidly, up 24% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. FarGlory HotelLtd's dividend payments per share have declined at 2.7% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Is FarGlory HotelLtd worth buying for its dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note FarGlory HotelLtd paid out a much higher percentage of its free cash flow, which makes us uncomfortable. In summary, it's hard to get excited about FarGlory HotelLtd from a dividend perspective.

With that being said, if dividends aren't your biggest concern with FarGlory HotelLtd, you should know about the other risks facing this business. In terms of investment risks, we've identified 1 warning sign with FarGlory HotelLtd and understanding them should be part of your investment process.

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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