Three Days Left To Buy Lelon Electronics Corp. (TWSE:2472) Before The Ex-Dividend Date

It looks like Lelon Electronics Corp. (TWSE:2472) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. 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. Accordingly, Lelon Electronics investors that purchase the stock on or after the 20th of August will not receive the dividend, which will be paid on the 16th of September.

The company's upcoming dividend is NT$2.80 a share, following on from the last 12 months, when the company distributed a total of NT$2.80 per share to shareholders. Last year's total dividend payments show that Lelon Electronics has a trailing yield of 3.4% on the current share price of NT$82.30. 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! As a result, readers should always check whether Lelon Electronics has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Lelon Electronics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Lelon Electronics paid out a comfortable 43% of its profit last year. 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. The company paid out 108% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Lelon Electronics does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While Lelon Electronics's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Lelon Electronics's ability to maintain its dividend.

Click here to see how much of its profit Lelon Electronics 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Lelon Electronics earnings per share are up 8.2% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Lelon Electronics has lifted its dividend by approximately 12% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Lelon Electronics? Lelon Electronics has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Lelon Electronics's dividend merits.

However if you're still interested in Lelon Electronics as a potential investment, you should definitely consider some of the risks involved with Lelon Electronics. Our analysis shows 1 warning sign for Lelon Electronics and you should be aware of this before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.