Tung Ho Steel Enterprise Corporation (TWSE:2006) Passed Our Checks, And It's About To Pay A NT$4.00 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Tung Ho Steel Enterprise Corporation (TWSE:2006) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase Tung Ho Steel Enterprise's shares on or after the 20th of March, you won't be eligible to receive the dividend, when it is paid on the 23rd of April.

The company's next dividend payment will be NT$4.00 per share, and in the last 12 months, the company paid a total of NT$4.00 per share. Calculating the last year's worth of payments shows that Tung Ho Steel Enterprise has a trailing yield of 5.2% on the current share price of NT$77.40. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Tung Ho Steel Enterprise

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Tung Ho Steel Enterprise is paying out an acceptable 65% 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. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Tung Ho Steel Enterprise's earnings have been skyrocketing, up 21% per annum 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, Tung Ho Steel Enterprise could have strong prospects for future increases to the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Tung Ho Steel Enterprise has delivered 5.3% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Tung Ho Steel Enterprise is keeping back more of its profits to grow the business.

Final Takeaway

Has Tung Ho Steel Enterprise got what it takes to maintain its dividend payments? Tung Ho Steel Enterprise'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. Overall we think this is an attractive combination and worthy of further research.

So while Tung Ho Steel Enterprise 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 Tung Ho Steel Enterprise that we strongly recommend you have a look at before investing in the company.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.