GLOBAL TEK FABRICATION's (TWSE:4566) Shareholders Will Receive A Smaller Dividend Than Last Year

The board of GLOBAL TEK FABRICATION CO., Ltd. (TWSE:4566) has announced that the dividend on 17th of May will be reduced by 32% from last year's NT$2.1 to NT$1.44. The dividend yield of 4.1% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for GLOBAL TEK FABRICATION

GLOBAL TEK FABRICATION's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, GLOBAL TEK FABRICATION was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Unless the company can turn things around, EPS could fall by 1.7% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 44%, which we are pretty comfortable with and we think is feasible on an earnings basis.

GLOBAL TEK FABRICATION's Dividend Has Lacked Consistency

Looking back, GLOBAL TEK FABRICATION's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The annual payment during the last 7 years was NT$1.00 in 2017, and the most recent fiscal year payment was NT$2.1. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that GLOBAL TEK FABRICATION's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

We should note that GLOBAL TEK FABRICATION has issued stock equal to 19% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for GLOBAL TEK FABRICATION that investors should know about before committing capital to this stock. Is GLOBAL TEK FABRICATION not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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