Four Days Left Until Taiwan Semiconductor Manufacturing Company Limited (TPE:2330) Trades Ex-Dividend

It looks like Taiwan Semiconductor Manufacturing Company Limited (TPE:2330) is about to go ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 17th of March will not receive this dividend, which will be paid on the 15th of April.

Taiwan Semiconductor Manufacturing's upcoming dividend is NT$2.50 a share, following on from the last 12 months, when the company distributed a total of NT$10.00 per share to shareholders. Calculating the last year's worth of payments shows that Taiwan Semiconductor Manufacturing has a trailing yield of 1.6% on the current share price of NT$614. If you buy this business for its dividend, you should have an idea of whether Taiwan Semiconductor Manufacturing's dividend is reliable and sustainable. As a result, readers should always check whether Taiwan Semiconductor Manufacturing has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Taiwan Semiconductor Manufacturing

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Taiwan Semiconductor Manufacturing paid out more than half (50%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 85% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that Taiwan Semiconductor Manufacturing'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?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Taiwan Semiconductor Manufacturing's earnings per share have been growing at 11% a year for the past five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Taiwan Semiconductor Manufacturing has increased its dividend at approximately 13% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

From a dividend perspective, should investors buy or avoid Taiwan Semiconductor Manufacturing? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Taiwan Semiconductor Manufacturing is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Taiwan Semiconductor Manufacturing's dividend merits.

Ever wonder what the future holds for Taiwan Semiconductor Manufacturing? See what the 26 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

If you decide to trade Taiwan Semiconductor Manufacturing, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.