Readers hoping to buy New Toyo International Holdings Ltd (SGX:N08) 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase New Toyo International Holdings' shares before the 5th of May in order to receive the dividend, which the company will pay on the 18th of May.

The company's next dividend payment will be S$0.009 per share, on the back of last year when the company paid a total of S$0.018 to shareholders. Based on the last year's worth of payments, New Toyo International Holdings has a trailing yield of 8.4% on the current stock price of SGD0.215. If you buy this business for its dividend, you should have an idea of whether New Toyo International Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for New Toyo International Holdings

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. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 41% of its free cash flow in the past year.

It's positive to see that New Toyo International Holdings'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 New Toyo International Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see New Toyo International Holdings has grown its earnings rapidly, up 30% a year for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, New Toyo International Holdings has lifted its dividend by approximately 1.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because New Toyo International Holdings is keeping back more of its profits to grow the business.

The Bottom Line

From a dividend perspective, should investors buy or avoid New Toyo International Holdings? We like New Toyo International Holdings's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in New Toyo International Holdings for the dividends alone, you should always be mindful of the risks involved. For example - New Toyo International Holdings has 3 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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.

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