Taiwan Surface Mounting Technology (TWSE:6278) Has Announced That Its Dividend Will Be Reduced To NT$5.00

Taiwan Surface Mounting Technology Corp.'s (TWSE:6278) dividend is being reduced from last year's payment covering the same period to NT$5.00 on the 9th of August. However, the dividend yield of 4.1% still remains in a typical range for the industry.

Check out our latest analysis for Taiwan Surface Mounting Technology

Taiwan Surface Mounting Technology's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite easily covered by Taiwan Surface Mounting Technology's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to fall by 3.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 62%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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$1.65, compared to the most recent full-year payment of NT$5.00. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Taiwan Surface Mounting Technology has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Taiwan Surface Mounting Technology has seen EPS rising for the last five years, at 21% per annum. Taiwan Surface Mounting Technology is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Taiwan Surface Mounting Technology Looks Like A Great Dividend Stock

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Taiwan Surface Mounting Technology has the makings of a solid income stock moving forward. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing 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. Just as an example, we've come across 2 warning signs for Taiwan Surface Mounting Technology you should be aware of, and 1 of them makes us a bit uncomfortable. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.

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