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Income Investors Should Know That Taitron Components Incorporated (NASDAQ:TAIT) Goes Ex-Dividend Soon

Taitron Components Incorporated (NASDAQ:TAIT) stock is about to trade ex-dividend in three days. If you purchase the stock on or after the 13th of August, you won't be eligible to receive this dividend, when it is paid on the 31st of August.

Taitron Components's next dividend payment will be US$0.035 per share. Last year, in total, the company distributed US$0.14 to shareholders. Calculating the last year's worth of payments shows that Taitron Components has a trailing yield of 5.2% on the current share price of $2.67. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Taitron Components

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Taitron Components paid out 110% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. 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. Thankfully its dividend payments took up just 49% of the free cash flow it generated, which is a comfortable payout ratio.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Taitron Components fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Taitron Components paid out over the last 12 months.

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historic-dividend

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Taitron Components's earnings have been skyrocketing, up 48% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past four years, Taitron Components has increased its dividend at approximately 8.8% a year on average. 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

Has Taitron Components got what it takes to maintain its dividend payments? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Taitron Components's paying out such a high percentage of its profit. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Taitron Components's dividend merits.

In light of that, while Taitron Components has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 4 warning signs for Taitron Components you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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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