Don't Race Out To Buy Phoenix Silicon International Corporation (TWSE:8028) Just Because It's Going Ex-Dividend

It looks like Phoenix Silicon International Corporation (TWSE:8028) is about to go ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Phoenix Silicon International's shares on or after the 11th of June, you won't be eligible to receive the dividend, when it is paid on the 10th of July.

The company's next dividend payment will be NT$1.80 per share, and in the last 12 months, the company paid a total of NT$1.80 per share. Based on the last year's worth of payments, Phoenix Silicon International stock has a trailing yield of around 2.8% on the current share price of NT$64.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Phoenix Silicon International has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Phoenix Silicon International

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Phoenix Silicon International paid out 92% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Phoenix Silicon International generated enough free cash flow to afford its dividend. Over the past year it paid out 191% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

As Phoenix Silicon International's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

Click here to see how much of its profit Phoenix Silicon International paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Phoenix Silicon International's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. With limited earnings growth and paying out a concerningly high percentage of its earnings, the prospects of future dividend growth don't look so bright here.

Phoenix Silicon International also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past nine years, Phoenix Silicon International has increased its dividend at approximately 8.1% a year on average.

The Bottom Line

Is Phoenix Silicon International worth buying for its dividend? Phoenix Silicon International is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Phoenix Silicon International.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Phoenix Silicon International. Be aware that Phoenix Silicon International is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.