Wellell's (TWSE:4106) Dividend Is Being Reduced To NT$0.80

Wellell Inc. (TWSE:4106) has announced that on 26th of August, it will be paying a dividend ofNT$0.80, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 2.8%, which is lower than the average for the industry.

View our latest analysis for Wellell

Wellell's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Wellell's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS could expand by 1.0% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 55% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was NT$0.50 in 2014, and the most recent fiscal year payment was NT$0.80. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Wellell's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Wellell is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

Even though the dividend was cut this year, we think Wellell has the ability to make consistent payments in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. For instance, we've picked out 2 warning signs for Wellell that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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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