Weltrend Semiconductor (TWSE:2436) Has Affirmed Its Dividend Of NT$1.20

The board of Weltrend Semiconductor, Inc. (TWSE:2436) has announced that it will pay a dividend of NT$1.20 per share on the 26th of July. This payment means the dividend yield will be 1.9%, which is below the average for the industry.

See our latest analysis for Weltrend Semiconductor

Weltrend Semiconductor's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before this announcement, Weltrend Semiconductor was paying out 82% of earnings, but a comparatively small 25% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share could rise by 4.1% over the next year if things go the same way as they have for the last few years. If recent patterns in the dividend continue, the payout ratio in 12 months could be 90% which is a bit high but can definitely be sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was NT$0.225, compared to the most recent full-year payment of NT$1.20. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Weltrend Semiconductor has only grown its earnings per share at 4.1% per annum over the past five years. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Weltrend Semiconductor's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Weltrend Semiconductor (of which 1 is a bit concerning!) you should know about. Is Weltrend Semiconductor 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.