Lien Hwa Industrial Holdings (TWSE:1229) Could Be A Buy For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Lien Hwa Industrial Holdings Corporation (TWSE:1229) is about to go ex-dividend in just three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Lien Hwa Industrial Holdings' shares on or after the 26th of July, you won't be eligible to receive the dividend, when it is paid on the 23rd of August.

The company's upcoming dividend is NT$1.30 a share, following on from the last 12 months, when the company distributed a total of NT$1.30 per share to shareholders. Calculating the last year's worth of payments shows that Lien Hwa Industrial Holdings has a trailing yield of 1.8% on the current share price of NT$70.50. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Lien Hwa Industrial Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Lien Hwa Industrial Holdings

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Lien Hwa Industrial Holdings paid out a comfortable 49% of its profit last year. A useful secondary check can be to evaluate whether Lien Hwa Industrial Holdings generated enough free cash flow to afford its dividend. Dividends consumed 71% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Lien Hwa Industrial Holdings'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 Lien Hwa Industrial Holdings 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Lien Hwa Industrial Holdings's earnings per share have been growing at 11% a year for the past five years. Lien Hwa Industrial Holdings is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of 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. In the last 10 years, Lien Hwa Industrial Holdings has lifted its dividend by approximately 9.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Lien Hwa Industrial Holdings an attractive dividend stock, or better left on the shelf? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Lien Hwa Industrial Holdings, and we would prioritise taking a closer look at it.

Want to learn more about Lien Hwa Industrial Holdings? Here's a visualisation of its historical rate of revenue and earnings growth.

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.

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