ELTA Technology Co.,Ltd. (TWSE:8487) Looks Interesting, And It's About To Pay A Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ELTA Technology Co.,Ltd. (TWSE:8487) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase ELTA TechnologyLtd's shares before the 4th of June in order to receive the dividend, which the company will pay on the 28th of June.

The company's next dividend payment will be NT$4.50 per share, and in the last 12 months, the company paid a total of NT$2.17 per share. Calculating the last year's worth of payments shows that ELTA TechnologyLtd has a trailing yield of 2.6% on the current share price of NT$84.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether ELTA TechnologyLtd can afford its dividend, and if the dividend could grow.

See our latest analysis for ELTA TechnologyLtd

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see ELTA TechnologyLtd paying out a modest 36% of its earnings. A useful secondary check can be to evaluate whether ELTA TechnologyLtd generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit ELTA TechnologyLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see ELTA TechnologyLtd has grown its earnings rapidly, up 45% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

ELTA TechnologyLtd also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ELTA TechnologyLtd has delivered an average of 1.4% per year annual increase in its dividend, based on the past eight years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because ELTA TechnologyLtd is keeping back more of its profits to grow the business.

Final Takeaway

Has ELTA TechnologyLtd got what it takes to maintain its dividend payments? It's great that ELTA TechnologyLtd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks ELTA TechnologyLtd is facing. To help with this, we've discovered 3 warning signs for ELTA TechnologyLtd that you should be aware of before investing in their shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.