Consider This Before Buying Life Travel & Tourist Service Co., Ltd. (GTSM:2745) For The 1.1% Dividend

Dividend paying stocks like Life Travel & Tourist Service Co., Ltd. (GTSM:2745) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. 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 1.1% yield and a five-year payment history, investors probably think Life Travel & Tourist Service looks like a reliable dividend stock. A low yield is generally a turn-off, but if the prospects for earnings growth were strong, investors might be pleasantly surprised by the long-term results. Remember though, due to the recent spike in its share price, Life Travel & Tourist Service's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. Some simple analysis can reduce the risk of holding Life Travel & Tourist Service for its dividend, and we'll focus on the most important aspects below.

Click the interactive chart for our full dividend analysis

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. While Life Travel & Tourist Service pays a dividend, it reported a loss over the last year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Last year, Life Travel & Tourist Service paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

With a strong net cash balance, Life Travel & Tourist Service investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Life Travel & Tourist Service 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. Looking at the data, we can see that Life Travel & Tourist Service has been paying a dividend for the past five years. During the past five-year period, the first annual payment was NT$2.5 in 2016, compared to NT$0.3 last year. Dividend payments have fallen sharply, down 88% over that time.

We struggle to make a case for buying Life Travel & Tourist Service for its dividend, given that payments have shrunk over the past five years.

Dividend Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Life Travel & Tourist Service's EPS have fallen by approximately 42% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Life Travel & Tourist Service's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Life Travel & Tourist Service's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. It's a concern to see that the company paid a dividend despite reporting a loss, and the dividend was also not well covered by free cash flow. Earnings per share are down, and Life Travel & Tourist Service's dividend has been cut at least once in the past, which is disappointing. There are a few too many issues for us to get comfortable with Life Travel & Tourist Service 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. Just as an example, we've come accross 3 warning signs for Life Travel & Tourist Service you should be aware of, and 1 of them is significant.

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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