Davicom Semiconductor (TWSE:3094) Is Paying Out Less In Dividends Than Last Year

The board of Davicom Semiconductor, Inc. (TWSE:3094) has announced it will be reducing its dividend by 39% from last year's payment of NT$1.00 on the 11th of July, with shareholders receiving NT$0.61. Despite the cut, the dividend yield of 3.1% will still be comparable to other companies in the industry.

Check out our latest analysis for Davicom Semiconductor

Davicom Semiconductor Is Paying Out More Than It Is Earning

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

If the company can't turn things around, EPS could fall by 2.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 138%, which could put the dividend in jeopardy if the company's earnings don't improve.

Davicom Semiconductor Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from NT$0.79 total annually to NT$1.00. This means that it has been growing its distributions at 2.4% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Davicom Semiconductor May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Over the past five years, it looks as though Davicom Semiconductor's EPS has declined at around 2.1% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payout levels might be a bit high for our liking, but we can't deny that until now, the payments have been pretty consistent. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Davicom Semiconductor (of which 1 doesn't sit too well with us!) you should know about. Is Davicom 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.