Should Income Investors Look At Deswell Industries, Inc. (NASDAQ:DSWL) Before Its Ex-Dividend?

By
Simply Wall St
Published
November 27, 2021
NasdaqGM:DSWL
Source: Shutterstock

It looks like Deswell Industries, Inc. (NASDAQ:DSWL) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Deswell Industries' shares on or after the 3rd of December, you won't be eligible to receive the dividend, when it is paid on the 22nd of December.

The company's upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.20 per share to shareholders. Looking at the last 12 months of distributions, Deswell Industries has a trailing yield of approximately 4.2% on its current stock price of $4.76. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Deswell Industries can afford its dividend, and if the dividend could grow.

See our latest analysis for Deswell Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Deswell Industries's payout ratio is modest, at just 29% of profit. 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.

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

historic-dividend
NasdaqGM:DSWL Historic Dividend November 28th 2021

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Deswell Industries's earnings per share have risen 19% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Deswell Industries's dividend payments are broadly unchanged compared to where they were 10 years ago.

To Sum It Up

Is Deswell Industries worth buying for its dividend? We like that Deswell Industries has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

On that note, you'll want to research what risks Deswell Industries is facing. For example, we've found 4 warning signs for Deswell Industries (1 is a bit concerning!) that deserve your attention before investing in the shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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