U-Tech Media Corporation (TWSE:3050) Goes Ex-Dividend Soon

It looks like U-Tech Media Corporation (TWSE:3050) is about to go ex-dividend in the next 2 days. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase U-Tech Media's shares before the 8th of August in order to be eligible for the dividend, which will be paid on the 12th of September.

The company's upcoming dividend is NT$0.50 a share, following on from the last 12 months, when the company distributed a total of NT$0.50 per share to shareholders. Based on the last year's worth of payments, U-Tech Media has a trailing yield of 2.0% on the current stock price of NT$24.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether U-Tech Media can afford its dividend, and if the dividend could grow.

See our latest analysis for U-Tech Media

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. U-Tech Media paid out 69% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 172% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

U-Tech Media paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were U-Tech Media to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit U-Tech Media 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. This is why it's a relief to see U-Tech Media earnings per share are up 8.1% 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. U-Tech Media has seen its dividend decline 6.2% per annum on average over the past eight years, which is not great to see. U-Tech Media is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

From a dividend perspective, should investors buy or avoid U-Tech Media? U-Tech Media is paying out a reasonable percentage of its income and an uncomfortably high 172% of its cash flow as dividends. At least earnings per share have been growing steadily. It's not that we think U-Tech Media is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering U-Tech Media as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that U-Tech Media is showing 5 warning signs in our investment analysis, and 1 of those is a bit concerning...

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.

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