Do These 3 Checks Before Buying Pan-International Industrial Corp. (TWSE:2328) For Its Upcoming Dividend

It looks like Pan-International Industrial Corp. (TWSE:2328) is about to go ex-dividend in the next three 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Pan-International Industrial's shares on or after the 30th of August, you won't be eligible to receive the dividend, when it is paid on the 25th of September.

The company's upcoming dividend is NT$1.30 a share, following on from the last 12 months, when the company distributed a total of NT$1.30 per share to shareholders. Based on the last year's worth of payments, Pan-International Industrial has a trailing yield of 3.7% on the current stock price of NT$35.45. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Pan-International Industrial can afford its dividend, and if the dividend could grow.

View our latest analysis for Pan-International Industrial

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. Pan-International Industrial paid out 62% 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. Over the last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Pan-International Industrial 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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Pan-International Industrial's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Pan-International Industrial has increased its dividend at approximately 16% a year on average.

The Bottom Line

Is Pan-International Industrial worth buying for its dividend? While earnings per share are flat, at least Pan-International Industrial has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

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 Pan-International Industrial. To help with this, we've discovered 1 warning sign for Pan-International Industrial that you should be aware of before investing in their 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.