Gemtek Technology Co., Ltd. (TWSE:4906) Goes Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Gemtek Technology Co., Ltd. (TWSE:4906) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Gemtek Technology's shares before the 26th of June to receive the dividend, which will be paid on the 19th of July.

The company's next dividend payment will be NT$1.480715 per share. Last year, in total, the company distributed NT$1.50 to shareholders. Last year's total dividend payments show that Gemtek Technology has a trailing yield of 3.9% on the current share price of NT$38.40. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Gemtek Technology

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Gemtek Technology paid out 96% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. A useful secondary check can be to evaluate whether Gemtek Technology generated enough free cash flow to afford its dividend. It distributed 27% of its free cash flow as dividends, a comfortable payout level for most companies.

It's good to see that while Gemtek Technology's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Gemtek Technology's earnings per share have been growing at 13% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Gemtek Technology has seen its dividend decline 2.3% per annum on average over the past 10 years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

The Bottom Line

Has Gemtek Technology got what it takes to maintain its dividend payments? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Gemtek Technology is paying out so much of its profit. To summarise, Gemtek Technology looks okay on this analysis, although it doesn't appear a stand-out opportunity.

On that note, you'll want to research what risks Gemtek Technology is facing. In terms of investment risks, we've identified 2 warning signs with Gemtek Technology and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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

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