Don't rush to buy Polytronics Technology Corporation (TWSE:6224) just because it goes ex-dividend

Polytronics Technology Co., Ltd. (TWSE:6224) stock is about to go ex-dividend in three days. The ex-dividend date is one business day before the company's record date, which is the date on which the company determines which shareholders are entitled to receive the dividend. When buying or selling stocks, the ex-dividend date is important because it takes at least two business days for the trade to settle. This means that investors who purchased Polytronics Technology shares after April 11th will not receive the dividend paid on May 3rd.

The company's next dividend payment will be NT$1.50 per share, and in the last 12 months, the company paid a total of NT$1.50 per share. Based on last year's total dividends, Polytronics Technology has a yield of 2.6% on the current stock price of NT$56.90. Dividends are an important source of income for many shareholders, but the health of the business is critical to maintaining dividends. As a result, readers should always check whether Polytronics Technology has been able to grow its dividends, or if the dividends could be cut.

Check out our latest analysis for Polytronics Technology.

If a company pays out more in dividends than it earned in profit, then the dividend might become unsustainable – hardly an ideal situation. Polytronics Technology distributed 121% of its unsustainably high profits to shareholders as dividends last year. Absent extenuating circumstances, we believe there is a risk that the dividend will be reduced. That said, even highly profitable companies might not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. Thankfully, the company's dividends account for just 43% of the free cash flow it generated, which is a comfortable payout ratio.

It is disappointing that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and fortunately Polytronics Technology has enough cash to fund its dividend. I created it. If management continues to pay out more in dividends than the company reports in profits, we would consider this a red flag. Very few companies can consistently pay out more dividends than their profits.

Click here to see how much profit Polytronics Technology paid out in the last twelve months.

Are profits and dividends growing?

Declining profits make dividend companies much harder to analyze and own safely. If profits decline significantly, the company may be forced to cut its dividend. Readers can then understand why we're concerned that Polytronics Technology's earnings per share have fallen by 22% per year over the last five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors assess a company's dividend prospects is by looking at its historical dividend growth rate. Polytronics Technology's dividends have declined by an average of 9.6% per year over the past 10 years, which isn't very encouraging. It's never a good thing to have declining profits and dividends, but at least management cut the dividend rather than potentially risking the health of the company to maintain its health.

Summary

Should investors buy or avoid Polytronics Technology from a dividend perspective? Declining earnings per share is never great. This feels uncomfortably high, especially when the company pays out 121% of its profits as dividends. However, the cash payout ratio is much lower, which is good news from a dividend perspective, and makes us wonder why there is such a discrepancy between earnings and cash flow. From a dividend perspective, this isn't the most attractive proposition, so we'll probably pass on it for now.

So if you're still interested in Polytronics Technology despite its poor dividend quality, you should be well-informed about some of the risks this stock faces. for that purpose, two warning signs We discovered in polytronics technology (including one that should be ignored).

Generally speaking, we don't recommend just buying the first dividend stock you see.Here it is A curated list of interesting stocks with strong dividends.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.