Formosa Oilseed Processing (TWSE:1225) Has Announced That Its Dividend Will Be Reduced To NT$1.40

Formosa Oilseed Processing Co., Ltd. (TWSE:1225) has announced that on 1st of October, it will be paying a dividend ofNT$1.40, which a reduction from last year's comparable dividend. This means that the annual payment is 0.9% of the current stock price, which is lower than what the rest of the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Formosa Oilseed Processing's stock price has increased by 114% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Formosa Oilseed Processing

Formosa Oilseed Processing's Dividend Is Well Covered By Earnings

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before this announcement, Formosa Oilseed Processing was paying out 86% of earnings, but a comparatively small 71% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Earnings per share could rise by 8.4% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 89%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Formosa Oilseed Processing Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was NT$0.238 in 2014, and the most recent fiscal year payment was NT$1.40. This means that it has been growing its distributions at 19% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

We Could See Formosa Oilseed Processing's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Formosa Oilseed Processing has grown earnings per share at 8.4% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

Overall, while it's not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. With a reasonable track record and good earnings coverage, the payments look sustainable. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Formosa Oilseed Processing has 2 warning signs (and 1 which can't be ignored) we think you should know about. Is Formosa Oilseed Processing not quite the opportunity you were looking for? Why not check out our selection of top 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.