Only Three Days Left To Cash In On Taitron Components' (NASDAQ:TAIT) Dividend

Readers hoping to buy Taitron Components Incorporated (NASDAQ:TAIT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 11th of February to receive the dividend, which will be paid on the 26th of February.

Taitron Components's upcoming dividend is US$0.04 a share, following on from the last 12 months, when the company distributed a total of US$0.16 per share to shareholders. Based on the last year's worth of payments, Taitron Components stock has a trailing yield of around 3.7% on the current share price of $4.27. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Taitron Components

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Taitron Components paid out 161% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 40% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while Taitron Components's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

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. That's why it's comforting to see Taitron Components's earnings have been skyrocketing, up 49% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past five years, Taitron Components has increased its dividend at approximately 9.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is Taitron Components worth buying for its dividend? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Taitron Components's paying out such a high percentage of its profit. Overall, it's hard to get excited about Taitron Components from a dividend perspective.

On that note, you'll want to research what risks Taitron Components is facing. In terms of investment risks, we've identified 5 warning signs with Taitron Components and understanding them should be part of your investment process.

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.

If you decide to trade Taitron Components, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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