Saturday, July 13, 2024

Don’t Race Out To Buy TA-I Technology Co., Ltd. (TWSE:2478) Just Because It’s Going Ex-Dividend

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Readers hoping to buy TA-I Technology Co., Ltd. (TWSE:2478) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Meaning, you will need to purchase TA-I Technology’s shares before the 27th of June to receive the dividend, which will be paid on the 24th of July.

The company’s next dividend payment will be NT$1.50 per share. Last year, in total, the company distributed NT$1.50 to shareholders. Looking at the last 12 months of distributions, TA-I Technology has a trailing yield of approximately 2.7% on its current stock price of NT$55.60. 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! We need to see whether the dividend is covered by earnings and if it’s growing.

See our latest analysis for TA-I Technology

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. TA-I Technology is paying out an acceptable 52% of its profit, a common payout level among most companies. 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. Dividends consumed 51% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.

It’s positive to see that TA-I 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 usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit TA-I Technology paid out over the last 12 months.

historic-dividend
TWSE:2478 Historic Dividend June 23rd 2024

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. TA-I Technology’s earnings per share have fallen at approximately 21% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. TA-I Technology has delivered an average of 18% per year annual increase in its dividend, based on the past 10 years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it’s always worth checking for when the company can’t increase the payout ratio any more – because then the music stops.

Final Takeaway

Should investors buy TA-I Technology for the upcoming dividend? While earnings per share are shrinking, it’s encouraging to see that at least TA-I Technology’s dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It’s not an attractive combination from a dividend perspective, and we’re inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of TA-I Technology don’t faze you, it’s worth being mindful of the risks involved with this business. Our analysis shows 2 warning signs for TA-I Technology that we strongly recommend you have a look at before investing in the company.

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 TA-I Technology 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.

View the Free Analysis

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

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.

Valuation is complex, but we’re helping make it simple.

Find out whether TA-I Technology 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.

View the Free Analysis

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

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