Taiwan Steel Union (TWSE:6581) Is Increasing Its Dividend To NT$6.00

The board of Taiwan Steel Union Co., Ltd. (TWSE:6581) has announced that it will be increasing its dividend by 40% on the 25th of April to NT$6.00, up from last year's comparable payment of NT$4.30. This takes the annual payment to 3.8% of the current stock price, which is about average for the industry.

See our latest analysis for Taiwan Steel Union

Taiwan Steel Union's Projected Earnings Seem Likely To Cover Future Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Taiwan Steel Union's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share could rise by 15.8% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 74% by next year, which is in a pretty sustainable range.

Taiwan Steel Union's Dividend Has Lacked Consistency

It's comforting to see that Taiwan Steel Union has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the dividend has gone from NT$3.40 total annually to NT$4.30. This means that it has been growing its distributions at 3.0% per annum over that time. 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 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 Taiwan Steel Union has grown earnings per share at 16% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Taiwan Steel Union is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Taiwan Steel Union (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.