Is It Smart To Buy Taitron Components Incorporated (NASDAQ:TAIT) Before It Goes Ex-Dividend?
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Taitron Components Incorporated (NASDAQ:TAIT) is about to go ex-dividend in just four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Taitron Components' shares before the 15th of February in order to receive the dividend, which the company will pay on the 29th of February.
The company's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.20 to shareholders. Looking at the last 12 months of distributions, Taitron Components has a trailing yield of approximately 6.2% on its current stock price of US$3.23. If you buy this business for its dividend, you should have an idea of whether Taitron Components's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Taitron Components
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Taitron Components is paying out an acceptable 68% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 10% of its free cash flow in the last year.
It's positive to see that Taitron Components'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 Taitron Components 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, Taitron Components's earnings per share have been growing at 18% a year for the past five years. Taitron Components is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Taitron Components has delivered an average of 9.1% per year annual increase in its dividend, based on the past eight years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Taitron Components for the upcoming dividend? Taitron Components's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Taitron Components, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Taitron Components is facing. For example - Taitron Components has 3 warning signs we think you should be aware of.
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.
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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.
