Here's What We Like About San Fang Chemical Industry's (TWSE:1307) Upcoming Dividend

San Fang Chemical Industry Co., Ltd. (TWSE:1307) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase San Fang Chemical Industry's shares on or after the 23rd of August will not receive the dividend, which will be paid on the 23rd of September.

The company's next dividend payment will be NT$1.50 per share. Last year, in total, the company distributed NT$1.50 to shareholders. Based on the last year's worth of payments, San Fang Chemical Industry stock has a trailing yield of around 4.6% on the current share price of NT$32.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for San Fang Chemical Industry

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. San Fang Chemical Industry is paying out an acceptable 53% of its profit, a common payout level among most companies. 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. The good news is it paid out just 24% of its free cash flow in the last year.

It's positive to see that San Fang Chemical Industry'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 San Fang Chemical Industry paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see San Fang Chemical Industry has grown its earnings rapidly, up 30% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, San Fang Chemical Industry could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. San Fang Chemical Industry has delivered 1.6% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because San Fang Chemical Industry is keeping back more of its profits to grow the business.

The Bottom Line

Is San Fang Chemical Industry worth buying for its dividend? We like San Fang Chemical Industry's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. San Fang Chemical Industry looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks San Fang Chemical Industry is facing. Our analysis shows 1 warning sign for San Fang Chemical Industry and you should be aware of it before buying any shares.

If you're in the market for strong dividend payers, we recommend checking 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.