Pan German Universal Motors' (TWSE:2247) Upcoming Dividend Will Be Larger Than Last Year's

Pan German Universal Motors Ltd. (TWSE:2247) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of July to NT$18.00. This takes the dividend yield to 5.6%, which shareholders will be pleased with.

See our latest analysis for Pan German Universal Motors

Pan German Universal Motors' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. At the time of the last dividend payment, Pan German Universal Motors was paying out a very large proportion of what it was earning and 156% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Earnings per share could rise by 17.8% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 79%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Pan German Universal Motors Is Still Building Its Track Record

It is great to see that Pan German Universal Motors has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of NT$8.00 in 2018 to the most recent total annual payment of NT$18.00. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Pan German Universal Motors' Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Pan German Universal Motors has been growing its earnings per share at 18% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Pan German Universal Motors that investors should take into consideration. Is Pan German Universal Motors not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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