Faraday Technology (TWSE:3035) Will Pay A Smaller Dividend Than Last Year

Faraday Technology Corporation (TWSE:3035) has announced that on 26th of July, it will be paying a dividend ofNT$4.29, which a reduction from last year's comparable dividend. This means that the annual payment is 1.5% of the current stock price, which is lower than what the rest of the industry is paying.

View our latest analysis for Faraday Technology

Faraday Technology'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. Prior to this announcement, Faraday Technology's dividend made up quite a large proportion of earnings but only 42% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

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$3.33, compared to the most recent full-year payment of NT$4.50. This implies that the company grew its distributions at a yearly rate of about 3.0% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Faraday Technology Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Faraday Technology has grown earnings per share at 35% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Faraday Technology hasn't been doing.

In Summary

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. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Faraday Technology that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.