Do These 3 Checks Before Buying Grape King Bio Ltd (TWSE:1707) For Its Upcoming Dividend

It looks like Grape King Bio Ltd (TWSE:1707) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase Grape King Bio's shares on or after the 21st of January, you won't be eligible to receive the dividend, when it is paid on the 21st of February.

The company's next dividend payment will be NT$2.70 per share, and in the last 12 months, the company paid a total of NT$5.40 per share. Last year's total dividend payments show that Grape King Bio has a trailing yield of 3.7% on the current share price of NT$145.00. If you buy this business for its dividend, you should have an idea of whether Grape King Bio's dividend is reliable and sustainable. So we need to investigate whether Grape King Bio can afford its dividend, and if the dividend could grow.

See our latest analysis for Grape King Bio

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. Last year Grape King Bio paid out 97% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 64% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Grape King Bio's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see how much of its profit Grape King Bio paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about Grape King Bio's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Grape King Bio has delivered an average of 0.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Should investors buy Grape King Bio for the upcoming dividend? Earnings per share have barely moved in recent times, and the company is paying out an uncomfortably high percentage of its income. Fortunately its cash generation was somewhat stronger. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Grape King Bio.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Grape King Bio. In terms of investment risks, we've identified 1 warning sign with Grape King Bio and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.