Is It Worth Considering VIA Labs, Inc. (TWSE:6756) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that VIA Labs, Inc. (TWSE:6756) is about to go ex-dividend in just couple of days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase VIA Labs' shares before the 18th of April to receive the dividend, which will be paid on the 22nd of May.

The company's next dividend payment will be NT$1.998016 per share, on the back of last year when the company paid a total of NT$2.00 to shareholders. Based on the last year's worth of payments, VIA Labs stock has a trailing yield of around 1.0% on the current share price of NT$205.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for VIA Labs

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 76% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit VIA Labs paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see VIA Labs earnings per share are up 4.7% per annum over the last five years. A high payout ratio of 76% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, VIA Labs could be signalling that its future growth prospects are thin.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. VIA Labs has seen its dividend decline 12% per annum on average over the past four years, which is not great to see. VIA Labs is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

From a dividend perspective, should investors buy or avoid VIA Labs? Earnings per share have been growing modestly and VIA Labs paid out a bit over half of its earnings and free cash flow last year. All things considered, we are not particularly enthused about VIA Labs from a dividend perspective.

However if you're still interested in VIA Labs as a potential investment, you should definitely consider some of the risks involved with VIA Labs. Case in point: We've spotted 1 warning sign for VIA Labs you should be aware of.

If you're in the market for strong dividend payers, we recommend checking 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.