Lite-On Technology Corporation (TWSE:2301) Passed Our Checks, And It's About To Pay A NT$2.00 Dividend

It looks like Lite-On Technology Corporation (TWSE:2301) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. In other words, investors can purchase Lite-On Technology's shares before the 19th of August in order to be eligible for the dividend, which will be paid on the 6th of September.

The company's next dividend payment will be NT$2.00 per share. Last year, in total, the company distributed NT$4.50 to shareholders. Looking at the last 12 months of distributions, Lite-On Technology has a trailing yield of approximately 4.1% on its current stock price of NT$109.50. If you buy this business for its dividend, you should have an idea of whether Lite-On Technology's dividend is reliable and sustainable. As a result, readers should always check whether Lite-On Technology has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Lite-On Technology

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Lite-On Technology's payout ratio is modest, at just 42% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Lite-On Technology'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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Lite-On Technology's earnings per share have risen 11% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Lite-On Technology has increased its dividend at approximately 5.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Lite-On Technology is keeping back more of its profits to grow the business.

The Bottom Line

Has Lite-On Technology got what it takes to maintain its dividend payments? Earnings per share have grown at a nice rate in recent times and over the last year, Lite-On Technology paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Lite-On Technology has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Lite-On Technology has 1 warning sign we think you should be aware of.

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.