Heran (TWSE:5283) Will Pay A Dividend Of NT$4.00

Heran Co., Ltd. (TWSE:5283) has announced that it will pay a dividend of NT$4.00 per share on the 22nd of April. This means the annual payment is 6.9% of the current stock price, which is above the average for the industry.

See our latest analysis for Heran

Heran Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 99% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

EPS is set to fall by 6.7% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 125%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was NT$0.866 in 2014, and the most recent fiscal year payment was NT$8.00. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Heran has seen earnings per share falling at 6.7% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Heran's Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Heran make more consistent payments in the future. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Heran that you should be aware of before investing. Is Heran not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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