Only Two Days Left To Cash In On Formosa Oilseed Processing's (TWSE:1225) Dividend

It looks like Formosa Oilseed Processing Co., Ltd. (TWSE:1225) is about to go ex-dividend in the next two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 Formosa Oilseed Processing's shares on or after the 28th of August, you won't be eligible to receive the dividend, when it is paid on the 1st of October.

The company's next dividend payment will be NT$1.40 per share. Last year, in total, the company distributed NT$1.40 to shareholders. Based on the last year's worth of payments, Formosa Oilseed Processing has a trailing yield of 0.9% on the current stock price of NT$163.00. 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 Formosa Oilseed Processing can afford its dividend, and if the dividend could grow.

See our latest analysis for Formosa Oilseed Processing

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Formosa Oilseed Processing is paying out an acceptable 68% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Formosa Oilseed Processing generated enough free cash flow to afford its dividend. It paid out more than half (65%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Formosa Oilseed Processing's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Formosa Oilseed Processing paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Formosa Oilseed Processing's earnings per share have been growing at 13% a year for the past five years. Formosa Oilseed Processing has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Formosa Oilseed Processing has delivered 19% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Formosa Oilseed Processing worth buying for its dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Formosa Oilseed Processing is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Formosa Oilseed Processing's dividend merits.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To that end, you should learn about the 2 warning signs we've spotted with Formosa Oilseed Processing (including 1 which is potentially serious).

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.