Solomon Technology's (TWSE:2359) Shareholders Will Receive A Bigger Dividend Than Last Year

Solomon Technology Corporation (TWSE:2359) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of July to NT$1.70. Even though the dividend went up, the yield is still quite low at only 1.6%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Solomon Technology's stock price has increased by 174% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Solomon Technology

Solomon Technology's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Solomon Technology's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS could expand by 13.5% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.

Solomon Technology's Dividend Has Lacked Consistency

It's comforting to see that Solomon Technology has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was NT$1.00, compared to the most recent full-year payment of NT$1.70. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Solomon Technology has grown earnings per share at 14% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Solomon Technology's Dividend

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 don't think Solomon Technology is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Solomon Technology that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.