Tung Ho Steel Enterprise (TWSE:2006) Is Paying Out Less In Dividends Than Last Year

Tung Ho Steel Enterprise Corporation (TWSE:2006) has announced that on 23rd of April, it will be paying a dividend ofNT$4.00, which a reduction from last year's comparable dividend. This means the annual payment is 5.3% of the current stock price, which is above the average for the industry.

See our latest analysis for Tung Ho Steel Enterprise

Tung Ho Steel Enterprise's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Tung Ho Steel Enterprise's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 21.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from NT$2.39 total annually to NT$4.00. This implies that the company grew its distributions at a yearly rate of about 5.3% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Tung Ho Steel Enterprise has grown earnings per share at 21% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Tung Ho Steel Enterprise could prove to be a strong dividend payer.

We Really Like Tung Ho Steel Enterprise's Dividend

Overall, we think that Tung Ho Steel Enterprise could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Tung Ho Steel Enterprise that investors should know about before committing capital to this stock. Is Tung Ho Steel Enterprise 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.