Regular readers know that we at Simply Wall St take a serious look at dividends. That’s why we’re excited to see Powertech Technology Inc. (TWSE:6239) hit its ex-dividend date in the next three days. The ex-dividend date is one business day before the company’s record date (the day the company determines which shareholders are eligible to receive dividends). The ex-dividend date is important because it takes two full business days for the settlement process, so if you miss it, you won’t be on the company’s books on the record date. So, you can buy Powertech Technology shares before August 1st to receive the dividend the company will pay on September 5th.
The company’s next dividend will be NT$7.00 per share, following on from the company paying a total of NT$7.00 to shareholders last year. Calculating last year’s dividends, we can see that Powertech Technology has a historical yield of 3.7% on the current share price of NT$189.00. Dividends can be a major contribution to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Powertech Technology has managed to grow its dividends, or whether the dividend might be cut.
View our latest analysis for Powertech Technology
Dividends are usually paid from company profits. If a company paid out more as dividends than it earned, the dividend may be unsustainable. Powertech Technology paid out more than half (61%) of its profits in dividends last year, a standard dividend payout ratio for most companies. However, cash flow is usually more important than profits for assessing the sustainability of a dividend, so we should always check if a company generated enough cash to pay its dividend. Thankfully, the company’s dividends accounted for just 35% of the free cash flow it generated, which is a decent payout ratio.
It’s good to see that Powertech Technology’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 suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s dividend payout ratio, plus analyst estimates of its future dividends.
TWSE:6239 July 28, 2024 Historical Dividend
Are profits and dividends increasing?
Companies with consistently growing earnings per share usually make the best dividend stocks, as it is easier to grow dividends per share. If earnings fall significantly, a company may be forced to cut its dividend. Therefore, it is reassuring to see that Powertech Technology’s earnings per share have grown at 7.5% per year over the past five years. Good historical growth in earnings per share suggests that Powertech Technology has been substantially increasing value for shareholders. However, it is currently paying out more than half of its profits as dividends. Therefore, it is unlikely that the company can reinvest significantly in the business, which could bode well for slower growth in the future.
Many investors assess a company’s dividend performance by evaluating how much the dividend has changed over time. Based on the past 10 years of dividend payments, Powertech Technology has achieved an average of 13% annual growth in its dividends. It’s good to see dividends growing alongside profits over several years, which may be a sign that the company intends to share that growth with shareholders.
summary
Is Powertech Technology worth buying for its dividend? Earnings per share growth has been modest and Powertech Technology has paid out just over half of its profits and less than half of its free cash flow, although both dividend payout ratios are within normal ranges. Overall, we’re not too bearish on the stock, but there are probably better dividend investments out there.
While it can be tempting to invest in Powertech Technology solely for the dividends, you should always be mindful of the risks involved. For example, we’ve found 1 warning sign for Powertech Technology that we recommend you consider before investing.
If you’re looking for stocks with high dividends, we recommend checking out our picks of the top dividend stocks.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
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