Yuen Foong Yu Consumer Products' (TWSE:6790) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Yuen Foong Yu Consumer Products Co., Ltd. (TWSE:6790) has announced that it will be paying its dividend of NT$3.00 on the 15th of August, an increased payment from last year's comparable dividend. This will take the annual payment to 5.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Yuen Foong Yu Consumer Products

Yuen Foong Yu Consumer Products' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Yuen Foong Yu Consumer Products was paying out 73% of earnings and more than 75% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

If the trend of the last few years continues, EPS will grow by 44.0% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.

Yuen Foong Yu Consumer Products' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The annual payment during the last 3 years was NT$4.00 in 2021, and the most recent fiscal year payment was NT$3.00. Doing the maths, this is a decline of about 9.1% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. We are encouraged to see that Yuen Foong Yu Consumer Products has grown earnings per share at 44% per year over the past five years. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

Our Thoughts On Yuen Foong Yu Consumer Products' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Yuen Foong Yu Consumer Products (of which 1 doesn't sit too well with us!) you should know about. Is Yuen Foong Yu Consumer Products 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.

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