VIA Labs (TWSE:6756) Has Announced That Its Dividend Will Be Reduced To NT$1.80

VIA Labs, Inc. (TWSE:6756) is reducing its dividend to NT$1.80 on the 22nd of Maywhich is 9.9% less than last year's comparable payment of NT$2. This means that the annual payment is 1.7% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for VIA Labs

VIA Labs' Future Dividends May Potentially Be At Risk

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, the company was paying out 98% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 49%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, EPS could fall by 11.0% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 101%, which is definitely a bit high to be sustainable going forward.

VIA Labs' Dividend Has Lacked Consistency

It's comforting to see that VIA Labs has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2020, the annual payment back then was NT$3.30, compared to the most recent full-year payment of NT$2. This works out to be a decline of approximately 9.5% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. VIA Labs' EPS has fallen by approximately 11% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

VIA Labs' Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. 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. As an example, we've identified 1 warning sign for VIA Labs that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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