Solomon Technology (TWSE:2359) Is Increasing Its Dividend To NT$1.70

The board of Solomon Technology Corporation (TWSE:2359) has announced that the dividend on 26th of July will be increased to NT$1.70, which will be 13% higher than last year's payment of NT$1.50 which covered the same period. Based on this payment, the dividend yield for the company will be 3.7%, which is fairly typical for the industry.

View our latest analysis for Solomon Technology

Solomon Technology's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last payment was quite easily covered by earnings, but it made up 204% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

If the trend of the last few years continues, EPS will grow by 30.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.

Solomon Technology's Dividend Has Lacked Consistency

Looking back, Solomon Technology's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the annual payment back then was NT$1.00, compared to the most recent full-year payment of NT$1.50. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Solomon Technology has grown earnings per share at 31% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Solomon Technology could prove to be a strong dividend payer.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Solomon Technology will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Solomon Technology that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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

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.