Universal Microelectronics Co., Ltd. (TWSE:2413) Goes Ex-Dividend Soon

Readers hoping to buy Universal Microelectronics Co., Ltd. (TWSE:2413) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Universal Microelectronics' shares on or after the 27th of August will not receive the dividend, which will be paid on the 16th of September.

The company's upcoming dividend is NT$0.20 a share, following on from the last 12 months, when the company distributed a total of NT$0.20 per share to shareholders. Looking at the last 12 months of distributions, Universal Microelectronics has a trailing yield of approximately 0.9% on its current stock price of NT$21.35. If you buy this business for its dividend, you should have an idea of whether Universal Microelectronics's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Universal Microelectronics

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. Universal Microelectronics distributed an unsustainably high 125% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. 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. Luckily it paid out just 17% of its free cash flow last year.

It's good to see that while Universal Microelectronics's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Universal Microelectronics paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Universal Microelectronics's earnings have been skyrocketing, up 24% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Universal Microelectronics has seen its dividend decline 11% per annum on average over the past eight years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Should investors buy Universal Microelectronics for the upcoming dividend? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Universal Microelectronics is paying out so much of its profit. All things considered, we are not particularly enthused about Universal Microelectronics from a dividend perspective.

On that note, you'll want to research what risks Universal Microelectronics is facing. In terms of investment risks, we've identified 4 warning signs with Universal Microelectronics and understanding them should be part of your investment process.

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.