Davicom Semiconductor (TWSE:3094) Is Reducing Its Dividend To NT$0.61

Davicom Semiconductor, Inc. (TWSE:3094) has announced it will be reducing its dividend payable on the 11th of July to NT$0.61, which is 39% lower than what investors received last year for the same period. The dividend yield will be in the average range for the industry at 3.2%.

See our latest analysis for Davicom Semiconductor

Davicom Semiconductor Doesn't Earn Enough To Cover Its Payments

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, the company was paying out 145% of what it was earning. 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 a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of NT$0.79 in 2014 to the most recent total annual payment of NT$1.00. This works out to be a compound annual growth rate (CAGR) of approximately 2.4% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Davicom Semiconductor's earnings per share has shrunk at approximately 2.1% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Davicom Semiconductor has 2 warning signs (and 1 which can't be ignored) we think 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.

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

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