Should Income Investors Look At Everlight Electronics Co., Ltd. (TWSE:2393) Before Its Ex-Dividend?

It looks like Everlight Electronics Co., Ltd. (TWSE:2393) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Everlight Electronics' shares before the 1st of August to receive the dividend, which will be paid on the 30th of August.

The company's next dividend payment will be NT$3.20 per share. Last year, in total, the company distributed NT$2.60 to shareholders. Looking at the last 12 months of distributions, Everlight Electronics has a trailing yield of approximately 3.1% on its current stock price of NT$83.60. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Everlight Electronics can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Everlight Electronics

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Everlight Electronics is paying out an acceptable 66% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Everlight Electronics generated enough free cash flow to afford its dividend. Dividends consumed 54% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Everlight Electronics'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 how much of its profit Everlight Electronics paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Everlight Electronics's earnings per share have risen 17% per annum over the last five years. Everlight Electronics is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Everlight Electronics has delivered 8.0% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy Everlight Electronics for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Everlight Electronics's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 66% and 54% respectively. In summary, while it has some positive characteristics, we're not inclined to race out and buy Everlight Electronics today.

So while Everlight Electronics looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for Everlight Electronics and you should be aware of it before buying any shares.

If you're in the market for strong dividend payers, we recommend checking 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.

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