Alltek Technology (TWSE:3209) Has Announced That Its Dividend Will Be Reduced To NT$2.1

Alltek Technology Corporation (TWSE:3209) has announced that on 21st of August, it will be paying a dividend ofNT$2.1, which a reduction from last year's comparable dividend. This means the annual payment is 5.7% of the current stock price, which is above the average for the industry.

View our latest analysis for Alltek Technology

Alltek Technology's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Earnings per share could rise by 16.6% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 83%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was NT$0.82, compared to the most recent full-year payment of NT$2.10. This implies that the company grew its distributions at a yearly rate of about 9.9% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Alltek Technology might have put its house in order since then, but we remain cautious.

Alltek Technology Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Alltek Technology has grown earnings per share at 17% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. Strong earnings growth means Alltek Technology has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Alltek Technology is a great stock to add to your portfolio if income is your focus.

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 3 warning signs for Alltek Technology (of which 2 are concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.

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