Only Four Days Left To Cash In On DrayTek's (TWSE:6216) Dividend

Readers hoping to buy DrayTek Corporation (TWSE:6216) 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 the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase DrayTek's shares before the 28th of August in order to be eligible for the dividend, which will be paid on the 2nd of October.

The company's next dividend payment will be NT$1.65411677 per share, on the back of last year when the company paid a total of NT$1.19 to shareholders. Calculating the last year's worth of payments shows that DrayTek has a trailing yield of 2.7% on the current share price of NT$44.55. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether DrayTek can afford its dividend, and if the dividend could grow.

See our latest analysis for DrayTek

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. DrayTek paid out 51% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether DrayTek generated enough free cash flow to afford its dividend. It paid out more than half (69%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that DrayTek's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that DrayTek's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. DrayTek's dividend payments per share have declined at 1.3% per year on average over the past 10 years, which is uninspiring.

To Sum It Up

Should investors buy DrayTek for the upcoming dividend? Earnings per share have barely grown, and although DrayTek paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

However if you're still interested in DrayTek as a potential investment, you should definitely consider some of the risks involved with DrayTek. In terms of investment risks, we've identified 3 warning signs with DrayTek 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.

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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.