Taiwan Hon Chuan Enterprise's (TWSE:9939) Shareholders Will Receive A Bigger Dividend Than Last Year

Taiwan Hon Chuan Enterprise Co., Ltd. (TWSE:9939) will increase its dividend from last year's comparable payment on the 26th of July to NT$5.35. Although the dividend is now higher, the yield is only 3.3%, which is below the industry average.

See our latest analysis for Taiwan Hon Chuan Enterprise

Taiwan Hon Chuan Enterprise's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last dividend, Taiwan Hon Chuan Enterprise is earning enough to cover the payment, but then it makes up 109% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 10.0% over the next year. If the dividend continues on this path, the payout ratio could be 55% by next year, which we think can be pretty sustainable going forward.

Taiwan Hon Chuan Enterprise Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was NT$2.50 in 2014, and the most recent fiscal year payment was NT$5.35. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

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. Taiwan Hon Chuan Enterprise has impressed us by growing EPS at 20% 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.

Our Thoughts On Taiwan Hon Chuan Enterprise's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Taiwan Hon Chuan Enterprise is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Taiwan Hon Chuan Enterprise that investors should know about before committing capital to this stock. 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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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.

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