Far Eastern Department Stores' (TWSE:2903) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Far Eastern Department Stores, Ltd. (TWSE:2903) has announced that it will be paying its dividend of NT$1.60 on the 6th of August, an increased payment from last year's comparable dividend. This takes the dividend yield to 4.5%, which shareholders will be pleased with.

Check out our latest analysis for Far Eastern Department Stores

Far Eastern Department Stores' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Far Eastern Department Stores' dividend made up quite a large proportion of earnings but only 23% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 12.9% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 80%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of NT$1.13 in 2014 to the most recent total annual payment of NT$1.60. This works out to be a compound annual growth rate (CAGR) of approximately 3.6% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Far Eastern Department Stores' Dividend Might Lack Growth

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Far Eastern Department Stores has grown earnings per share at 13% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Far Eastern Department Stores that you should be aware of before investing. Is Far Eastern Department Stores not quite the opportunity you were looking for? Why not check out 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.

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