Froch Enterprise (TWSE:2030) Will Pay A Smaller Dividend Than Last Year

Froch Enterprise Co., Ltd. (TWSE:2030) has announced that on 2nd of August, it will be paying a dividend ofNT$0.50, which a reduction from last year's comparable dividend. This means that the annual payment is 2.8% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Froch Enterprise

Froch Enterprise Doesn't Earn Enough To Cover Its Payments

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, the company was paying out 275% of what it was earning and 81% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

If the company can't turn things around, EPS could fall by 37.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 492%, which could put the dividend under pressure if earnings don't start to improve.

Froch Enterprise's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was NT$0.476, compared to the most recent full-year payment of NT$0.50. Its dividends have grown at less than 1% per annum over this time frame. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 38% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Froch Enterprise's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

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. Case in point: We've spotted 3 warning signs for Froch Enterprise (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.

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