Da-Li DevelopmentLtd (TWSE:6177) Could Be A Buy 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 Da-Li Development Co.,Ltd. (TWSE:6177) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Da-Li DevelopmentLtd investors that purchase the stock on or after the 30th of July will not receive the dividend, which will be paid on the 3rd of September.

The company's next dividend payment will be NT$3.00 per share. Last year, in total, the company distributed NT$3.00 to shareholders. Calculating the last year's worth of payments shows that Da-Li DevelopmentLtd has a trailing yield of 4.1% on the current share price of NT$73.30. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Da-Li DevelopmentLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Da-Li DevelopmentLtd is paying out an acceptable 64% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 8.0% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Da-Li DevelopmentLtd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Da-Li DevelopmentLtd's earnings have been skyrocketing, up 97% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, nine years ago, Da-Li DevelopmentLtd has lifted its dividend by approximately 0.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Da-Li DevelopmentLtd is keeping back more of its profits to grow the business.

To Sum It Up

Should investors buy Da-Li DevelopmentLtd for the upcoming dividend? We like Da-Li DevelopmentLtd's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

So while Da-Li DevelopmentLtd looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Da-Li DevelopmentLtd has 3 warning signs we think you should be aware of.

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