Readers hoping to buy Deswell Industries, Inc. (NASDAQ:DSWL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 24th of June in order to receive the dividend, which the company will pay on the 10th of July.
Deswell Industries’s upcoming dividend is US$0.09 a share, following on from the last 12 months, when the company distributed a total of US$0.18 per share to shareholders. Based on the last year’s worth of payments, Deswell Industries stock has a trailing yield of around 7.2% on the current share price of $2.5. If you buy this business for its dividend, you should have an idea of whether Deswell Industries’s dividend is reliable and sustainable. As a result, readers should always check whether Deswell Industries has been able to grow its dividends, or if the dividend might be cut.
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. Deswell Industries reported a loss after tax last year, which means it’s paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Deswell Industries didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 19% of its free cash flow as dividends last year, which is conservatively low.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Deswell Industries was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Deswell Industries has seen its dividend decline 7.7% per annum on average over the past ten years, which is not great to see.
We update our analysis on Deswell Industries every 24 hours, so you can always get the latest insights on its financial health, here.
Is Deswell Industries an attractive dividend stock, or better left on the shelf? We’re a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall, it’s hard to get excited about Deswell Industries from a dividend perspective.
So while Deswell Industries looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. Case in point: We’ve spotted 2 warning signs for Deswell Industries you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.