How Does Sigong Tech Co., Ltd. (KOSDAQ:020710) Stand Up To These Simple Dividend Safety Checks?

Is Sigong Tech Co., Ltd. (KOSDAQ:020710) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

While Sigong Tech's 1.5% dividend yield is not the highest, we think its lengthy payment history is quite interesting. There are a few simple ways to reduce the risks of buying Sigong Tech for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Sigong Tech!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Sigong Tech paid out 10% of its profit as dividends, over the trailing twelve month period. Given the low payout ratio, it is hard to envision the dividend coming under threat, barring a catastrophe.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Sigong Tech's cash payout ratio last year was 11%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. It's positive to see that Sigong Tech'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.

While the above analysis focuses on dividends relative to a company's earnings, we do note Sigong Tech's strong net cash position, which will let it pay larger dividends for a time, should it choose.

We update our data on Sigong Tech every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Sigong Tech's dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was ₩30.0 in 2011, compared to ₩80.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time.

It's rare to find a company that has grown its dividends rapidly over 10 years and not had any notable cuts, but Sigong Tech has done it, which we really like.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. It's good to see Sigong Tech has been growing its earnings per share at 32% a year over the past five years. Earnings per share have grown rapidly, and the company is retaining a majority of its earnings. We think this is ideal from an investment perspective, if the company is able to reinvest these earnings effectively.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that Sigong Tech has low and conservative payout ratios. We like that it has been delivering solid improvement in its earnings per share, and relatively consistent dividend payments. All these things considered, we think this organisation has a lot going for it from a dividend perspective.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Sigong Tech that investors should take into consideration.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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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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