Asia Optical Co., Inc. (TWSE:3019) Stock Goes Ex-Dividend In Just Three Days

Readers hoping to buy Asia Optical Co., Inc. (TWSE:3019) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Asia Optical investors that purchase the stock on or after the 20th of June will not receive the dividend, which will be paid on the 19th of July.

The company's next dividend payment will be NT$1.80 per share, on the back of last year when the company paid a total of NT$1.80 to shareholders. Looking at the last 12 months of distributions, Asia Optical has a trailing yield of approximately 2.5% on its current stock price of NT$71.20. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Asia Optical

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Asia Optical paid out 58% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Asia Optical generated enough free cash flow to afford its dividend. It paid out 20% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Asia Optical's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. 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 not ideal to see Asia Optical's earnings per share have been shrinking at 4.4% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Asia Optical has delivered 8.8% dividend growth per year on average over the past seven years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

To Sum It Up

From a dividend perspective, should investors buy or avoid Asia Optical? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. In summary, while it has some positive characteristics, we're not inclined to race out and buy Asia Optical today.

If you want to look further into Asia Optical, it's worth knowing the risks this business faces. To that end, you should learn about the 2 warning signs we've spotted with Asia Optical (including 1 which is a bit concerning).

If you're in the market for strong dividend payers, we recommend checking 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com