Here's Why We're Wary Of Buying San Far Property's (TWSE:9946) 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 San Far Property Limited (TWSE:9946) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. Therefore, if you purchase San Far Property's shares on or after the 5th of September, you won't be eligible to receive the dividend, when it is paid on the 30th of September.

The company's next dividend payment will be NT$0.70 per share, and in the last 12 months, the company paid a total of NT$0.43 per share. Looking at the last 12 months of distributions, San Far Property has a trailing yield of approximately 1.1% on its current stock price of NT$38.40. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for San Far Property

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, San Far Property paid out 254% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. A useful secondary check can be to evaluate whether San Far Property generated enough free cash flow to afford its dividend. Luckily it paid out just 23% of its free cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and San Far Property fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit San Far Property 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 earnings fall far enough, the company could be forced to cut its dividend. San Far Property's earnings per share have fallen at approximately 6.9% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. San Far Property has seen its dividend decline 13% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Should investors buy San Far Property for the upcoming dividend? It's not a great combination to see a company with earnings in decline and paying out 254% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not that we think San Far Property is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering San Far Property as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that San Far Property is showing 3 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.