Alpha Networks (TWSE:3380) Is Paying Out Less In Dividends Than Last Year

Alpha Networks Inc. (TWSE:3380) is reducing its dividend from last year's comparable payment to NT$1.01 on the 9th of August. The dividend yield of 2.9% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Alpha Networks

Alpha Networks Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Alpha Networks' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share could rise by 25.1% over the next year if things go the same way as they have for the last few years. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 98% over the next year.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was NT$1.26 in 2014, and the most recent fiscal year payment was NT$1.01. The dividend has shrunk at around 2.2% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Alpha Networks' Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Alpha Networks has impressed us by growing EPS at 25% per year over the past five years. EPS has been growing well, but Alpha Networks has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Alpha Networks is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Alpha Networks that investors need to be conscious of moving forward. 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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