There's A Lot To Like About Castles Technology's (TWSE:5258) Upcoming NT$1.20 Dividend

Readers hoping to buy Castles Technology Co., Ltd. (TWSE:5258) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. Accordingly, Castles Technology investors that purchase the stock on or after the 24th of September will not receive the dividend, which will be paid on the 29th of October.

The company's upcoming dividend is NT$1.20 a share, following on from the last 12 months, when the company distributed a total of NT$1.20 per share to shareholders. Looking at the last 12 months of distributions, Castles Technology has a trailing yield of approximately 0.9% on its current stock price of NT$129.50. If you buy this business for its dividend, you should have an idea of whether Castles Technology's dividend is reliable and sustainable. So we need to investigate whether Castles Technology can afford its dividend, and if the dividend could grow.

See our latest analysis for Castles 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. Castles Technology has a low and conservative payout ratio of just 15% of its income after tax. A useful secondary check can be to evaluate whether Castles 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 encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Castles Technology paid out over the last 12 months.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Castles Technology has grown its earnings rapidly, up 51% a year for the past five years. Castles Technology is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Castles Technology has lifted its dividend by approximately 11% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Is Castles Technology worth buying for its dividend? Castles Technology has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Castles Technology looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Want to learn more about Castles Technology's dividend performance? Check out this visualisation of its historical revenue and earnings growth.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.