Hua Yu Lien Development's (TWSE:1436) Shareholders Will Receive A Bigger Dividend Than Last Year

Hua Yu Lien Development Co., Ltd's (TWSE:1436) dividend will be increasing from last year's payment of the same period to NT$6.02 on 16th of August. Based on this payment, the dividend yield for the company will be 3.4%, which is fairly typical for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Hua Yu Lien Development's stock price has increased by 63% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Hua Yu Lien Development

Hua Yu Lien Development's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Hua Yu Lien Development's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

If the trend of the last few years continues, EPS will grow by 24.1% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 63% by next year, which is in a pretty sustainable range.

Hua Yu Lien Development's Dividend Has Lacked Consistency

Looking back, Hua Yu Lien Development's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has gone from NT$0.941 total annually to NT$6.02. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. Hua Yu Lien Development has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Hua Yu Lien Development has impressed us by growing EPS at 24% per year over the past five years. Hua Yu Lien Development is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Hua Yu Lien Development will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Hua Yu Lien Development 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 5 warning signs for Hua Yu Lien Development (2 make us uncomfortable!) that you should be aware of before investing. 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.

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