Is Lite-On Know-how Company (TPE:2301) an excellent dividend inventory? How can we inform? Dividend paying firms with rising earnings could be extremely rewarding in the long run. Sadly, it’s normal for traders to be enticed in by the seemingly engaging yield, and lose cash when the corporate has to chop its dividend funds.
With Lite-On Know-how yielding 5.2% and having paid a dividend for over 10 years, many traders doubtless discover the corporate fairly fascinating. It will not be a shock to find that many traders purchase it for the dividends. Some easy evaluation can provide a number of insights when shopping for an organization for its dividend, and we’ll undergo this under.
Corporations (often) pay dividends out of their earnings. If an organization is paying greater than it earns, the dividend might need to be lower. So we have to type a view on if an organization’s dividend is sustainable, relative to its internet revenue after tax. Trying on the knowledge, we will see that 79% of Lite-On Know-how’s income have been paid out as dividends within the final 12 months. It is paying out most of its earnings, which limits the quantity that may be reinvested within the enterprise. This may increasingly point out restricted want for additional capital inside the enterprise, or spotlight a dedication to paying a dividend.
One other essential examine we do is to see if the free money circulation generated is enough to pay the dividend. Lite-On Know-how paid out 53% of its money circulation as dividends final 12 months, which is inside an affordable vary for the typical company. It is encouraging to see that the dividend is roofed by each revenue and money circulation. This usually suggests the dividend is sustainable, so long as earnings do not drop precipitously.
With a robust internet money steadiness, Lite-On Know-how traders could not have a lot to fret about within the close to time period from a dividend perspective.
We replace our knowledge on Lite-On Know-how each 24 hours, so you’ll be able to all the time get our latest analysis of its financial health, here.
Earlier than shopping for a inventory for its revenue, we need to see if the dividends have been secure up to now, and if the corporate has a observe report of sustaining its dividend. For the aim of this text, we solely scrutinise the final decade of Lite-On Know-how’s dividend funds. Its dividend funds have declined on at the very least one event over the previous 10 years. Throughout the previous 10-year interval, the primary annual fee was NT$2.2 in 2011, in comparison with NT$3.4 final 12 months. This works out to be a compound annual development price (CAGR) of roughly 4.6% a 12 months over that point. The expansion in dividends has not been linear, however the CAGR is a good approximation of the speed of change over this time-frame.
We’re glad to see the dividend has risen, however with a restricted price of development and fluctuations within the funds, we do not assume that is a lovely mixture.
Dividend Development Potential
Provided that the dividend has been lower up to now, we have to examine if earnings are rising and if that may result in stronger dividends sooner or later. Lite-On Know-how has grown its earnings per share at 6.8% each year over the previous 5 years. Previous earnings development has been first rate, however until that is a kind of uncommon companies that may develop with out extra capital funding or advertising and marketing spend, we would usually count on the upper payout ratio to restrict its future development prospects.
To summarise, shareholders ought to all the time examine that Lite-On Know-how’s dividends are inexpensive, that its dividend funds are comparatively secure, and that it has first rate prospects for rising its earnings and dividend. Lite-On Know-how’s is paying out greater than half its revenue as dividends, however at the very least the dividend is roofed by each reported earnings and cashflow. Second, earnings development has been strange, and its historical past of dividend funds is chequered – having lower its dividend at the very least as soon as up to now. Finally, Lite-On Know-how comes up quick on our dividend evaluation. It is not that we expect it’s a unhealthy firm – simply that there are doubtless extra interesting dividend prospects on the market on this evaluation.
Corporations possessing a secure dividend coverage will doubtless get pleasure from larger investor curiosity than these affected by a extra inconsistent strategy. On the identical time, there are different elements our readers ought to take heed to earlier than pouring capital right into a inventory. Taking the talk a bit additional, we have recognized 1 warning sign for Lite-On Technology that traders should be aware of transferring ahead.
On the lookout for extra high-yielding dividend concepts? Strive our curated list of dividend stocks with a yield above 3%.
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