Test-Rite International (TWSE:2908) Has Announced That Its Dividend Will Be Reduced To NT$0.5832

Test-Rite International Co., Ltd.'s (TWSE:2908) dividend is being reduced from last year's payment covering the same period to NT$0.5832 on the 5th of July. This means that the annual payment is 2.9% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for Test-Rite International

Test-Rite International Is Paying Out More Than It Is Earning

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Based on the last payment, Test-Rite International's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

EPS is set to fall by 3.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 132%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was NT$1.00, compared to the most recent full-year payment of NT$0.60. This works out to be a decline of approximately 5.0% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Test-Rite International's earnings per share has shrunk at approximately 3.2% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Test-Rite International (of which 1 shouldn't be ignored!) you should know about. Is Test-Rite International not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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