Taiwan Steel Union's (TWSE:6581) Dividend Will Be Increased To NT$6.00

Taiwan Steel Union Co., Ltd. (TWSE:6581) will increase its dividend from last year's comparable payment on the 25th of April to NT$6.00. This will take the dividend yield to an attractive 5.3%, providing a nice boost to shareholder returns.

View our latest analysis for Taiwan Steel Union

Taiwan Steel Union's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Taiwan Steel Union's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Over the next year, EPS could expand by 15.8% if recent trends continue. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 74% which would be quite comfortable going to take the dividend forward.

Taiwan Steel Union's Dividend Has Lacked Consistency

Looking back, Taiwan Steel Union's dividend hasn't been particularly consistent. 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$6.00. This implies that the company grew its distributions at a yearly rate of about 7.4% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Could Be Constrained

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. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Taiwan Steel Union's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means Taiwan Steel Union has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Taiwan Steel Union is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Taiwan Steel Union (of which 1 makes us a bit uncomfortable!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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