Swancor Holding's (TWSE:3708) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Swancor Holding Co., LTD. (TWSE:3708) has announced that the dividend on 26th of July will be increased to NT$6.00, which will be 20% higher than last year's payment of NT$5 which covered the same period. Based on this payment, the dividend yield for the company will be 3.7%, which is fairly typical for the industry.

View our latest analysis for Swancor Holding

Swancor Holding Is Paying Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Swancor Holding's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 66.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 132%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was NT$1.91, compared to the most recent full-year payment of NT$5. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. Swancor Holding has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Swancor Holding has grown earnings per share at 37% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Swancor Holding's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Swancor Holding (of which 1 is significant!) 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.