Cheng Loong (TWSE:1904) Is Paying Out Less In Dividends Than Last Year

Cheng Loong Corporation's (TWSE:1904) dividend is being reduced from last year's payment covering the same period to NT$0.50 on the 26th of July. This means that the annual payment is 1.7% of the current stock price, which is lower than what the rest of the industry is paying.

Check out our latest analysis for Cheng Loong

Cheng Loong's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Cheng Loong's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

If the company can't turn things around, EPS could fall by 17.4% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 87% in the next 12 months which is on the higher end of the range we would say is sustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of NT$0.60 in 2014 to the most recent total annual payment of NT$0.50. This works out to be a decline of approximately 1.8% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Cheng Loong's EPS has fallen by approximately 17% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Cheng Loong (2 shouldn't be ignored!) that you should be aware of before investing. Is Cheng Loong 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.