Is It Worth Considering Darfon Electronics Corp. (TWSE:8163) For Its Upcoming Dividend?

Darfon Electronics Corp. (TWSE:8163) stock is about to trade ex-dividend in three days. 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. This means that investors who purchase Darfon Electronics' shares on or after the 4th of July will not receive the dividend, which will be paid on the 5th of August.

The company's next dividend payment will be NT$4.00 per share. Last year, in total, the company distributed NT$4.00 to shareholders. Calculating the last year's worth of payments shows that Darfon Electronics has a trailing yield of 5.8% on the current share price of NT$68.90. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Darfon Electronics can afford its dividend, and if the dividend could grow.

View our latest analysis for Darfon Electronics

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Darfon Electronics is paying out an acceptable 68% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 29% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Darfon Electronics'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 Darfon Electronics paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Darfon Electronics'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. Darfon Electronics has delivered an average of 21% per year annual increase in its dividend, based on the past 10 years of dividend payments.

The Bottom Line

Is Darfon Electronics worth buying for its dividend? It's unfortunate that earnings per share have not grown, and we'd note that Darfon Electronics is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

So while Darfon Electronics looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example - Darfon Electronics has 2 warning signs we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com