Tung Ho Steel Enterprise Corporation (TWSE:2006) stock is about to trade ex-dividend in three 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Tung Ho Steel Enterprise’s shares before the 22nd of March in order to be eligible for the dividend, which will be paid on the 26th of April.
The company’s upcoming dividend is NT$4.20 a share, following on from the last 12 months, when the company distributed a total of NT$4.20 per share to shareholders. Calculating the last year’s worth of payments shows that Tung Ho Steel Enterprise has a trailing yield of 5.5% on the current share price of NT$76.50. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Tung Ho Steel Enterprise
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. Tung Ho Steel Enterprise paid out 60% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 40% of its free cash flow in the past year.
It’s positive to see that Tung Ho Steel Enterprise’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 usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Tung Ho Steel Enterprise’s earnings per share have risen 18% per annum over the last five years. Tung Ho Steel Enterprise has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Tung Ho Steel Enterprise has lifted its dividend by approximately 5.8% a year on average. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Final Takeaway
Should investors buy Tung Ho Steel Enterprise for the upcoming dividend? Tung Ho Steel Enterprise’s growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Tung Ho Steel Enterprise looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
On that note, you’ll want to research what risks Tung Ho Steel Enterprise is facing. Every company has risks, and we’ve spotted 3 warning signs for Tung Ho Steel Enterprise (of which 1 doesn’t sit too well with us!) you should know about.
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.
Valuation is complex, but we’re helping make it simple.
Find out whether Tung Ho Steel Enterprise is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
