Is It Smart To Buy Asia Vital Components Co., Ltd. (TWSE:3017) Before It Goes Ex-Dividend?

Asia Vital Components Co., Ltd. (TWSE:3017) stock is about to trade ex-dividend in 2 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Asia Vital Components' shares before the 15th of August in order to be eligible for the dividend, which will be paid on the 20th of September.

The company's next dividend payment will be NT$6.957345 per share. Last year, in total, the company distributed NT$7.00 to shareholders. Calculating the last year's worth of payments shows that Asia Vital Components has a trailing yield of 1.2% on the current share price of NT$568.00. If you buy this business for its dividend, you should have an idea of whether Asia Vital Components's dividend is reliable and sustainable. So we need to investigate whether Asia Vital Components can afford its dividend, and if the dividend could grow.

View our latest analysis for Asia Vital Components

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Asia Vital Components's payout ratio is modest, at just 41% of profit. 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 good news is it paid out just 18% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Asia Vital Components's earnings have been skyrocketing, up 54% per annum for the past five years. Asia Vital Components is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Asia Vital Components has delivered 43% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Asia Vital Components? It's great that Asia Vital Components is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Asia Vital Components looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Asia Vital Components looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Asia Vital Components you should be aware of.

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.