Three Days Left Until Compal Electronics, Inc. (TPE:2324) Trades Ex-Dividend

It looks like Compal Electronics, Inc. (TPE:2324) is about to go ex-dividend in the next three days. You can purchase shares before the 23rd of April in order to receive the dividend, which the company will pay on the 21st of May.

The upcoming dividend for Compal Electronics will put a total of NT$1.60 per share in shareholders' pockets, up from last year's total dividends of NT$1.20. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Compal Electronics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Compal Electronics paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. 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. Fortunately, it paid out only 38% of its free cash flow in the past year.

It's positive to see that Compal Electronics'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 the company's payout ratio, plus analyst estimates of its future dividends.

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. With that in mind, we're not enthused to see that Compal Electronics's earnings per share have remained effectively flat 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. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Compal Electronics's dividend payments per share have declined at 6.5% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

From a dividend perspective, should investors buy or avoid Compal Electronics? It's unfortunate that earnings per share have not grown, and we'd note that Compal Electronics is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Compal Electronics's dividend merits.

In light of that, while Compal Electronics has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 3 warning signs for Compal Electronics (2 are potentially serious!) that deserve your attention before investing in the shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you decide to trade Compal Electronics, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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