Hua Yu Lien Development's (TWSE:1436) Upcoming Dividend Will Be Larger Than Last Year's

Hua Yu Lien Development Co., Ltd (TWSE:1436) has announced that it will be increasing its dividend from last year's comparable payment on the 16th of August to NT$5.63. Based on this payment, the dividend yield for the company will be 3.3%, 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 54% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Hua Yu Lien Development

Hua Yu Lien Development's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Based on the last payment, Hua Yu Lien Development's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 24.1% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 59% 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 implies that the company grew its distributions at a yearly rate of about 23% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Hua Yu Lien Development has been growing its earnings per share at 24% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Our Thoughts On Hua Yu Lien Development's Dividend

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Hua Yu Lien Development (of which 2 are potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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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