Should You Buy Ho Tung Chemical Corp. (TWSE:1714) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ho Tung Chemical Corp. (TWSE:1714) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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. This means that investors who purchase Ho Tung Chemical's shares on or after the 15th of August will not receive the dividend, which will be paid on the 13th of September.

The company's next dividend payment will be NT$0.30 per share, on the back of last year when the company paid a total of NT$0.30 to shareholders. Last year's total dividend payments show that Ho Tung Chemical has a trailing yield of 3.3% on the current share price of NT$9.19. If you buy this business for its dividend, you should have an idea of whether Ho Tung Chemical's dividend is reliable and sustainable. As a result, readers should always check whether Ho Tung Chemical has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Ho Tung Chemical

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ho Tung Chemical paid out 54% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 8.0% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Ho Tung Chemical'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 Ho Tung Chemical 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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Ho Tung Chemical's earnings per share have been growing at 16% a year for the past five years. Ho Tung Chemical is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ho Tung Chemical's dividend payments are effectively flat on where they were six years ago.

To Sum It Up

Has Ho Tung Chemical got what it takes to maintain its dividend payments? Ho Tung Chemical's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Ho Tung Chemical looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Ho Tung Chemical looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for Ho Tung Chemical that we strongly recommend you have a look at before investing in the company.

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.

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.