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Factors Income Investors Should Consider Before Adding News World Wu Company (GTSM:2245) To Their Portfolio
Today we'll take a closer look at News World Wu Company (GTSM:2245) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.
With a four-year payment history and a 8.7% yield, many investors probably find News World Wu intriguing. It sure looks interesting on these metrics - but there's always more to the story. There are a few simple ways to reduce the risks of buying News World Wu for its dividend, and we'll go through these below.
Explore this interactive chart for our latest analysis on News World Wu!
Payout ratios
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 143% of News World Wu's profits were paid out as dividends in the last 12 months. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. With a cash payout ratio of 173%, News World Wu's dividend payments are poorly covered by cash flow. Paying out more than 100% of your free cash flow in dividends is generally not a long-term, sustainable state of affairs, so we think shareholders should watch this metric closely. Cash is slightly more important than profit from a dividend perspective, but given News World Wu's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Remember, you can always get a snapshot of News World Wu's latest financial position, by checking our visualisation of its financial health.
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. News World Wu has been paying a dividend for the past four years. This company's dividend has been unstable, and with a relatively short history, we think it's a little soon to draw strong conclusions about its long term dividend potential. Its most recent annual dividend was NT$2.0 per share, effectively flat on its first payment four years ago.
We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don't think this is an attractive combination.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though News World Wu's EPS have declined at around 20% a year. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.
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. It's a concern to see that the company paid out such a high percentage of its earnings and cashflow as dividends. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. There are a few too many issues for us to get comfortable with News World Wu from a dividend perspective. Businesses can change, but we would struggle to identify why an investor should rely on this stock for their income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, News World Wu has 5 warning signs (and 2 which make us uncomfortable) we think you should know about.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
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Access Free AnalysisThis 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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About TPEX:2245
News World Wu
Manufactures and sells automobile ignition wire sets and coil-related parts.
Flawless balance sheet with solid track record.