Today is Thursday, April 18, 2019, and this is your daily dividend safety update. Today we’re looking at Taiwan Semiconductor (NYSE: TSM) stock to see whether its 3% dividend is safe.
Let’s look at the company’s payout ratio, cash flow growth, and dividend history to gauge the probability of a dividend cut in the next few years.
Payout Ratio (Dividends/Earnings)
Taiwan Semiconductor has a payout ratio of 59.12%. That’s low enough for us! Payout ratio equals dividends per share divided by earnings per share. A low payout ratio indicates that the company has plenty of money to cover its dividend. We’d be more concerned if the ratio was closer to 100% (or over it).
Cash Flow Growth Year-Over-Year
Taiwan Semiconductor has not grown its cash flow in the last year. That’s a bad omen for dividend investors. No cash flow means no dividend, so if cash flow isn’t growing, that’s a problem for us.
Dividend History & Recent Cuts
Taiwan Semiconductor has a recent history of dividend cuts. In fact, it’s only been 5 years since the last cut. That’s not a good sign. Companies that have recently cut their dividend are generally more likely to cut them again.
The Takeaway
Taiwan Semiconductor stock has failed 2 of our 3 dividend safety metrics. With that in mind, we believe a dividend cut is likely in the next few years.
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P.S. Are you worried about the safety of your dividend stocks? Is there a particular stock you want us to grade next? Leave the ticker symbol in the comment section below.