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Readers hoping to buy Deswell Industries, Inc. (NASDAQ:DSWL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Deswell Industries' shares before the 2nd of December in order to be eligible for the dividend, which will be paid on the 23rd of December.
The company's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.20 to shareholders. Calculating the last year's worth of payments shows that Deswell Industries has a trailing yield of 7.5% on the current share price of US$2.67. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Deswell Industries
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Deswell Industries paid out a comfortable 31% of its profit last year. A useful secondary check can be to evaluate whether Deswell Industries generated enough free cash flow to afford its dividend. It distributed 28% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Deswell Industries paid out over the last 12 months.
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. Fortunately for readers, Deswell Industries's earnings per share have been growing at 19% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.