Capital Futures' (TWSE:6024) Upcoming Dividend Will Be Larger Than Last Year's

Capital Futures Corporation (TWSE:6024) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of July to NT$3.44. This makes the dividend yield 5.7%, which is above the industry average.

See our latest analysis for Capital Futures

Capital Futures' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, Capital Futures is earning enough to cover the payment, but then it makes up 276% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share could rise by 8.2% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 70% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of NT$1.6 in 2014 to the most recent total annual payment of NT$3.44. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Capital Futures might have put its house in order since then, but we remain cautious.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Capital Futures has been growing its earnings per share at 8.2% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Capital Futures' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Capital Futures' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Capital Futures (of which 1 is significant!) you should know about. If you are a dividend investor, you might also want to look at our curated 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.