Don't Race Out To Buy Kuo Yang Construction Co., Ltd. (TWSE:2505) Just Because It's Going Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Kuo Yang Construction Co., Ltd. (TWSE:2505) is about to go ex-dividend in just 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Kuo Yang Construction's shares before the 29th of August to receive the dividend, which will be paid on the 30th of September.

The company's next dividend payment will be NT$0.40 per share. Last year, in total, the company distributed NT$0.40 to shareholders. Looking at the last 12 months of distributions, Kuo Yang Construction has a trailing yield of approximately 1.5% on its current stock price of NT$26.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Kuo Yang Construction

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. Kuo Yang Construction is paying out an acceptable 56% of its profit, a common payout level among most companies. Kuo Yang Construction paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Click here to see how much of its profit Kuo Yang Construction paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Kuo Yang Construction's earnings per share have plummeted approximately 31% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kuo Yang Construction's dividend payments per share have declined at 5.9% 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

From a dividend perspective, should investors buy or avoid Kuo Yang Construction? We're not overly enthused to see Kuo Yang Construction's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. It doesn't appear an outstanding opportunity, but could be worth a closer look.

If you're not too concerned about Kuo Yang Construction's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To help with this, we've discovered 2 warning signs for Kuo Yang Construction 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.