Don't Buy Far EasTone Telecommunications Co., Ltd. (TWSE:4904) For Its Next Dividend Without Doing These Checks

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Far EasTone Telecommunications Co., Ltd. (TWSE:4904) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Far EasTone Telecommunications investors that purchase the stock on or after the 10th of July will not receive the dividend, which will be paid on the 7th of August.

The company's next dividend payment will be NT$3.25 per share, and in the last 12 months, the company paid a total of NT$3.25 per share. Looking at the last 12 months of distributions, Far EasTone Telecommunications has a trailing yield of approximately 3.6% on its current stock price of NT$91.10. 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 Far EasTone Telecommunications can afford its dividend, and if the dividend could grow.

See our latest analysis for Far EasTone Telecommunications

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Far EasTone Telecommunications paid out 96% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Far EasTone Telecommunications generated enough free cash flow to afford its dividend. Dividends consumed 54% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Far EasTone Telecommunications's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Far EasTone Telecommunications'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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Far EasTone Telecommunications's dividend payments per share have declined at 1.4% per year on average over the past 10 years, which is uninspiring.

To Sum It Up

Is Far EasTone Telecommunications worth buying for its dividend? Flat earnings per share and a high payout ratio are not what we like to see, although at least it paid out a lower percentage of its free cash flow. It's not that we think Far EasTone Telecommunications is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Far EasTone Telecommunications as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 3 warning signs for Far EasTone Telecommunications 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