Kwong Fong Industries (TWSE:1416) Has Affirmed Its Dividend Of NT$0.50

Kwong Fong Industries Corporation's (TWSE:1416) investors are due to receive a payment of NT$0.50 per share on 5th of July. This means that the annual payment will be 3.8% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Kwong Fong Industries

Kwong Fong Industries' Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Kwong Fong Industries was paying out 76% of earnings and more than 75% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Unless the company can turn things around, EPS could fall by 7.4% over the next year. Assuming the dividend continues along recent trends, the payout ratio in 12 months could be 68%, which is more comfortable than the current payout ratio.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of NT$3.48 in 2014 to the most recent total annual payment of NT$0.50. This works out to a decline of approximately 86% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Is Doubtful

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Kwong Fong Industries' EPS has declined at around 7.4% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kwong Fong Industries' payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Kwong Fong Industries that you should be aware of before investing. Is Kwong Fong Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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