Should Income Investors Look At eCloudvalley Digital Technology Co., Ltd. (TWSE:6689) Before Its Ex-Dividend?

eCloudvalley Digital Technology Co., Ltd. (TWSE:6689) is about to trade ex-dividend in the next three 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 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. Thus, you can purchase eCloudvalley Digital Technology's shares before the 30th of July in order to receive the dividend, which the company will pay on the 21st of August.

The company's next dividend payment will be NT$2.00 per share. Last year, in total, the company distributed NT$2.00 to shareholders. Last year's total dividend payments show that eCloudvalley Digital Technology has a trailing yield of 1.8% on the current share price of NT$114.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether eCloudvalley Digital Technology has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for eCloudvalley Digital Technology

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. eCloudvalley Digital Technology paid out 71% of its earnings to investors last year, a normal payout level for most businesses. 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 an unsustainably high 209% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

eCloudvalley Digital Technology does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

eCloudvalley Digital Technology paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to eCloudvalley Digital Technology's ability to maintain its dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see eCloudvalley Digital Technology earnings per share are up 9.2% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last five years, eCloudvalley Digital Technology has lifted its dividend by approximately 12% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Has eCloudvalley Digital Technology got what it takes to maintain its dividend payments? Earnings per share have grown somewhat, although eCloudvalley Digital Technology paid out over half its profits and the dividend was not well covered by free cash flow. Bottom line: eCloudvalley Digital Technology has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

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 eCloudvalley Digital Technology. For example, we've found 2 warning signs for eCloudvalley Digital Technology (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.

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