EDOM Technology's (TWSE:3048) Dividend Will Be Reduced To NT$1.00

EDOM Technology Co., Ltd. (TWSE:3048) is reducing its dividend from last year's comparable payment to NT$1.00 on the 30th of August. This means that the annual payment is 2.2% of the current stock price, which is lower than what the rest of the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that EDOM Technology's stock price has increased by 95% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for EDOM Technology

EDOM Technology Doesn't Earn Enough To Cover Its Payments

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, the company was paying out 317% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 27%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, EPS could fall by 18.5% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 455%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of NT$0.335 in 2014 to the most recent total annual payment of NT$1.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. EDOM Technology's earnings per share has shrunk at 18% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

EDOM Technology's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 6 warning signs for EDOM Technology (of which 3 make us uncomfortable!) you should know about. If you are a dividend investor, you might also want to look at our curated 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.

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