Weltrend Semiconductor (TWSE:2436) Has Announced A Dividend Of NT$1.21

The board of Weltrend Semiconductor, Inc. (TWSE:2436) has announced that it will pay a dividend of NT$1.21 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.

Check out our latest analysis for Weltrend Semiconductor

Weltrend Semiconductor's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. The last payment made up 82% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

EPS is set to grow by 4.1% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 90%, 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$0.225 in 2014 to the most recent total annual payment of NT$1.20. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Weltrend Semiconductor has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Weltrend Semiconductor May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 4.1% per year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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 probably look elsewhere for an income investment.

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. Just as an example, we've come across 2 warning signs for Weltrend Semiconductor you should be aware of, and 1 of them doesn't sit too well with us. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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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