We Wouldn't Be Too Quick To Buy Fwusow Industry Co., Ltd. (TWSE:1219) Before It Goes Ex-Dividend

Fwusow Industry Co., Ltd. (TWSE:1219) is about to trade ex-dividend in the next 3 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Fwusow Industry's shares before the 27th of June to receive the dividend, which will be paid on the 15th of July.

The company's next dividend payment will be NT$0.50 per share. Last year, in total, the company distributed NT$0.50 to shareholders. Calculating the last year's worth of payments shows that Fwusow Industry has a trailing yield of 2.6% on the current share price of NT$19.05. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Fwusow Industry

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fwusow Industry paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Fwusow Industry generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 369% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

Fwusow Industry 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 Fwusow Industry 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 Fwusow Industry paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Fwusow Industry earnings per share are up 3.8% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Fwusow Industry has delivered 18% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has Fwusow Industry got what it takes to maintain its dividend payments? Earnings per share have grown somewhat, although Fwusow Industry paid out over half its profits and the dividend was not well covered by free cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Fwusow Industry despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 2 warning signs for Fwusow Industry (of which 1 is potentially serious!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com