Nan Pao Resins Chemical's (TWSE:4766) Shareholders Will Receive A Bigger Dividend Than Last Year

Nan Pao Resins Chemical Co., Ltd. (TWSE:4766) will increase its dividend from last year's comparable payment on the 19th of July to NT$15.00. This makes the dividend yield about the same as the industry average at 4.4%.

Check out our latest analysis for Nan Pao Resins Chemical

Nan Pao Resins Chemical's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before this announcement, Nan Pao Resins Chemical was paying out 75% of earnings, but a comparatively small 63% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS could expand by 25.7% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 68%, which is in the range that makes us comfortable with the sustainability of the dividend.

Nan Pao Resins Chemical Doesn't Have A Long Payment History

Nan Pao Resins Chemical's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2018, the dividend has gone from NT$5.00 total annually to NT$15.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Nan Pao Resins Chemical has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Nan Pao Resins Chemical has grown earnings per share at 26% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Nan Pao Resins Chemical hasn't been doing.

We Really Like Nan Pao Resins Chemical's Dividend

Overall, a dividend increase is always good, and we think that Nan Pao Resins Chemical is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Nan Pao Resins Chemical that investors should know about before committing capital to this stock. Is Nan Pao Resins Chemical not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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