Do Investors Have Good Reason To Be Wary Of My Humble House Hospitality Management Consulting Co., Ltd.'s (TPE:2739) 3.8% Dividend Yield?

Dividend paying stocks like My Humble House Hospitality Management Consulting Co., Ltd. (TPE:2739) 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. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

With a six-year payment history and a 3.8% yield, many investors probably find My Humble House Hospitality Management Consulting intriguing. It sure looks interesting on these metrics - but there's always more to the story. 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 My Humble House Hospitality Management Consulting!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Although My Humble House Hospitality Management Consulting pays a dividend, it was loss-making during the past year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

My Humble House Hospitality Management Consulting's cash payout ratio last year was 15%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.

With a strong net cash balance, My Humble House Hospitality Management Consulting investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of My Humble House Hospitality Management Consulting's latest financial position, by checking our visualisation of its financial health.

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. Looking at the data, we can see that My Humble House Hospitality Management Consulting has been paying a dividend for the past six years. It's good to see that My Humble House Hospitality Management Consulting 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 six-year period, the first annual payment was NT$2.2 in 2015, compared to NT$1.0 last year. Dividend payments have fallen sharply, down 55% over that time.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

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. My Humble House Hospitality Management Consulting's earnings per share have shrunk at 58% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and My Humble House Hospitality Management Consulting's earnings per share, which support the dividend, have been anything but stable.

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. We're not keen on the fact that My Humble House Hospitality Management Consulting paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, My Humble House Hospitality Management Consulting has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are likely more attractive alternatives out there.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come accross 2 warning signs for My Humble House Hospitality Management Consulting you should be aware of, and 1 of them is potentially serious.

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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