Don't Buy YC Inox Co.,Ltd (TWSE:2034) For Its Next Dividend Without Doing These Checks

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that YC Inox Co.,Ltd (TWSE:2034) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase YC InoxLtd's shares on or after the 26th of July will not receive the dividend, which will be paid on the 23rd of August.

The company's next dividend payment will be NT$1.00 per share, and in the last 12 months, the company paid a total of NT$1.00 per share. Calculating the last year's worth of payments shows that YC InoxLtd has a trailing yield of 3.9% on the current share price of NT$25.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether YC InoxLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for YC InoxLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. YC InoxLtd lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. YC InoxLtd paid out more free cash flow than it generated - 168%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Click here to see how much of its profit YC InoxLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. YC InoxLtd reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, YC InoxLtd has increased its dividend at approximately 4.6% a year on average.

We update our analysis on YC InoxLtd every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is YC InoxLtd an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of YC InoxLtd don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 4 warning signs for YC InoxLtd 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.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com