DFI Inc. (TWSE:2397) has announced that on 9th of August, it will be paying a dividend ofNT$3.00, which a reduction from last year's comparable dividend. The dividend yield of 4.1% is still a nice boost to shareholder returns, despite the cut.
View our latest analysis for DFI
DFI Doesn't Earn Enough To Cover Its Payments
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, DFI's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
If the company can't turn things around, EPS could fall by 14.3% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 142%, which could put the dividend under pressure if earnings don't start to improve.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of NT$1.80 in 2014 to the most recent total annual payment of NT$3.00. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. 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 Has Limited Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. DFI's EPS has fallen by approximately 14% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
The Dividend Could Prove To Be Unreliable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for DFI you should be aware of, and 1 of them is concerning. Is DFI not quite the opportunity you were looking for? Why not check out 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.
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About TWSE:2397
DFI
Designs, manufactures, and sells board and system-level products for embedded applications worldwide.
Excellent balance sheet second-rate dividend payer.
