DrayTek (TWSE:6216) Has Announced That Its Dividend Will Be Reduced To NT$1.65

DrayTek Corporation (TWSE:6216) has announced that on 2nd of October, it will be paying a dividend ofNT$1.65, which a reduction from last year's comparable dividend. However, the dividend yield of 2.7% still remains in a typical range for the industry.

View our latest analysis for DrayTek

DrayTek's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by DrayTek's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS could expand by 4.2% if recent trends continue. If the dividend continues on this path, the payout ratio could be 65% by next year, which we think can be pretty sustainable going forward.

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$1.36, compared to the most recent full-year payment of NT$1.19. The dividend has shrunk at around 1.3% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

DrayTek May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 4.2% per year. Growth of 4.2% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On DrayTek's Dividend

Overall, we think that DrayTek could make a reasonable income stock, even though it did cut the dividend this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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. Taking the debate a bit further, we've identified 2 warning signs for DrayTek that investors need to be conscious of moving forward. Is DrayTek not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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