Compeq Manufacturing Co., Ltd. (TWSE:2313) Goes Ex-Dividend Soon

Compeq Manufacturing Co., Ltd. (TWSE:2313) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. This means that investors who purchase Compeq Manufacturing's shares on or after the 3rd of June will not receive the dividend, which will be paid on the 27th of June.

The company's next dividend payment will be NT$1.50 per share, on the back of last year when the company paid a total of NT$1.50 to shareholders. Looking at the last 12 months of distributions, Compeq Manufacturing has a trailing yield of approximately 2.0% on its current stock price of NT$75.00. If you buy this business for its dividend, you should have an idea of whether Compeq Manufacturing's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Compeq Manufacturing

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 Compeq Manufacturing's payout ratio is modest, at just 37% of profit. A useful secondary check can be to evaluate whether Compeq Manufacturing generated enough free cash flow to afford its dividend. Over the past year it paid out 186% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Compeq Manufacturing paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Compeq Manufacturing to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Compeq Manufacturing's earnings per share have risen 15% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Compeq Manufacturing has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Is Compeq Manufacturing an attractive dividend stock, or better left on the shelf? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Compeq Manufacturing's dividend merits.

While it's tempting to invest in Compeq Manufacturing for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Compeq Manufacturing and you should be aware of it before buying any shares.

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