Does Golden Bridge Electech Inc. (TPE:6133) Have A Place In Your Dividend Stock Portfolio?

Is Golden Bridge Electech Inc. (TPE:6133) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

With a 2.2% yield and a seven-year payment history, investors probably think Golden Bridge Electech looks like a reliable dividend stock. A 2.2% yield is not inspiring, but the longer payment history has some appeal. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Explore this interactive chart for our latest analysis on Golden Bridge Electech!

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. 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. Golden Bridge Electech paid out 1,524% of its profit as dividends, over the trailing twelve month period. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Unfortunately, while Golden Bridge Electech pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.

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

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

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Golden Bridge Electech has been paying a dividend for the past seven years. It's good to see that Golden Bridge Electech has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we're concerned that what has been cut once, could be cut again. During the past seven-year period, the first annual payment was NT$0.3 in 2014, compared to NT$0.3 last year. This works out to be a decline of approximately 2.6% per year over that time. Golden Bridge Electech's dividend has been cut sharply at least once, so it hasn't fallen by 2.6% every year, but this is a decent approximation of the long term change.

We struggle to make a case for buying Golden Bridge Electech for its dividend, given that payments have shrunk over the past seven years.

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 Golden Bridge Electech's EPS have declined at around 46% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Golden Bridge Electech's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Golden Bridge Electech's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Golden Bridge Electech paid out almost all of its cash flow and profit as dividends, leaving little to reinvest in the business. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. Using these criteria, Golden Bridge Electech looks quite suboptimal from a dividend investment perspective.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Golden Bridge Electech has 6 warning signs (and 1 which shouldn't be ignored) 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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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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