Don't Buy Asia Polymer Corporation (TWSE:1308) For Its Next Dividend Without Doing These Checks

Readers hoping to buy Asia Polymer Corporation (TWSE:1308) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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 Asia Polymer's shares on or after the 25th of July, you won't be eligible to receive the dividend, when it is paid on the 23rd of August.

The company's upcoming dividend is NT$0.45 a share, following on from the last 12 months, when the company distributed a total of NT$0.45 per share to shareholders. Last year's total dividend payments show that Asia Polymer has a trailing yield of 2.3% on the current share price of NT$19.80. If you buy this business for its dividend, you should have an idea of whether Asia Polymer's dividend is reliable and sustainable. As a result, readers should always check whether Asia Polymer has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Asia Polymer

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Asia Polymer lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the past year it paid out 117% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Asia Polymer does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Click here to see how much of its profit Asia Polymer paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Asia Polymer was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Asia Polymer has seen its dividend decline 5.5% per annum on average over the past 10 years, which is not great to see.

Get our latest analysis on Asia Polymer's balance sheet health here.

The Bottom Line

Is Asia Polymer an attractive dividend stock, or better left on the shelf? It's hard to get used to Asia Polymer paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Asia Polymer despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example - Asia Polymer has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com