It Might Not Be A Great Idea To Buy CyberLink Corp. (TWSE:5203) For Its Next Dividend

CyberLink Corp. (TWSE:5203) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase CyberLink's shares on or after the 12th of August, you won't be eligible to receive the dividend, when it is paid on the 30th of August.

The company's upcoming dividend is NT$2.80 a share, following on from the last 12 months, when the company distributed a total of NT$2.80 per share to shareholders. Calculating the last year's worth of payments shows that CyberLink has a trailing yield of 3.0% on the current share price of NT$93.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether CyberLink can afford its dividend, and if the dividend could grow.

Check out our latest analysis for CyberLink

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. It paid out 76% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 77% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that CyberLink's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit CyberLink 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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about CyberLink's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CyberLink's dividend payments per share have declined at 8.8% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

From a dividend perspective, should investors buy or avoid CyberLink? While earnings per share are flat, at least CyberLink has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. Bottom line: CyberLink has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in CyberLink and want to know more, you'll find it very useful to know what risks this stock faces. For example, CyberLink has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.

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