Here's Why We're Wary Of Buying ScinoPharm Taiwan's (TWSE:1789) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ScinoPharm Taiwan, Ltd. (TWSE:1789) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase ScinoPharm Taiwan's shares on or after the 4th of July will not receive the dividend, which will be paid on the 25th of July.

The company's next dividend payment will be NT$0.30 per share. Last year, in total, the company distributed NT$0.30 to shareholders. Based on the last year's worth of payments, ScinoPharm Taiwan has a trailing yield of 1.0% on the current stock price of NT$29.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether ScinoPharm Taiwan can afford its dividend, and if the dividend could grow.

View our latest analysis for ScinoPharm Taiwan

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. ScinoPharm Taiwan is paying out an acceptable 62% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out an unsustainably high 262% of its free cash flow as dividends over the past 12 months, which is worrying. It's pretty hard to pay out more than you earn, so we wonder how ScinoPharm Taiwan intends to continue funding this dividend, or if it could be forced to cut the payment.

ScinoPharm Taiwan does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

ScinoPharm Taiwan paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to ScinoPharm Taiwan's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that ScinoPharm Taiwan's earnings are down 2.8% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. ScinoPharm Taiwan's dividend payments per share have declined at 12% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

The Bottom Line

Is ScinoPharm Taiwan worth buying for its dividend? It's definitely not great to see earnings per share shrinking. The company paid out an acceptable percentage of its income, but an uncomfortably high percentage of its cash flow over the past year. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Keen to explore more data on ScinoPharm Taiwan's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com