Be Sure To Check Out Solid Year Co., Ltd. (GTSM:6737) Before It Goes Ex-Dividend

Solid Year Co., Ltd. (GTSM:6737) stock is about to trade ex-dividend in three days. Ex-dividend means that investors that purchase the stock on or after the 7th of January will not receive this dividend, which will be paid on the 29th of January.

The upcoming dividend for Solid Year will put a total of NT$1.60 per share in shareholders' pockets, up from last year's total dividends of NT$1.20. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Solid Year

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Solid Year's payout ratio is modest, at just 30% of profit. A useful secondary check can be to evaluate whether Solid Year generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 3.6% of its cash flow last year.

It's positive to see that Solid Year'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 Solid Year 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. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Solid Year's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Unfortunately Solid Year has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Has Solid Year got what it takes to maintain its dividend payments? Earnings per share have been flat over this time, but we're intrigued to see that Solid Year is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Solid Year is halfway there. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Solid Year is facing. Our analysis shows 1 warning sign for Solid Year and you should be aware of this before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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