Formosan Rubber Group Inc. (TWSE:2107) Stock Goes Ex-Dividend In Just Four Days

Readers hoping to buy Formosan Rubber Group Inc. (TWSE:2107) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. In other words, investors can purchase Formosan Rubber Group's shares before the 1st of July in order to be eligible for the dividend, which will be paid on the 23rd of July.

The company's next dividend payment will be NT$1.30 per share, and in the last 12 months, the company paid a total of NT$1.30 per share. Based on the last year's worth of payments, Formosan Rubber Group has a trailing yield of 4.8% on the current stock price of NT$27.05. 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 Formosan Rubber Group has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Formosan Rubber Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Formosan Rubber Group is paying out an acceptable 73% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Formosan Rubber Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Formosan Rubber Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Formosan Rubber Group has grown its earnings rapidly, up 24% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Formosan Rubber Group has seen its dividend decline 7.2% per annum on average over the past 10 years, which is not great to see. Formosan Rubber Group is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Formosan Rubber Group worth buying for its dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Formosan Rubber Group is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, while it has some positive characteristics, we're not inclined to race out and buy Formosan Rubber Group today.

While it's tempting to invest in Formosan Rubber Group for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Formosan Rubber Group you should know about.

If you're in the market for strong dividend payers, we recommend checking 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.

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