Dividend paying stocks like INTAI Technology Corporation (GTSM:4163) 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. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
In this case, INTAI Technology likely looks attractive to dividend investors, given its 4.3% dividend yield and nine-year payment history. We'd agree the yield does look enticing. There are a few simple ways to reduce the risks of buying INTAI Technology for its dividend, and we'll go through these below.
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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. INTAI Technology paid out 78% of its profit as dividends, over the trailing twelve month period. It's paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.
We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. With a cash payout ratio of 146%, INTAI Technology'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. While INTAI Technology's dividends were covered by the company's reported profits, free cash flow is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were INTAI Technology to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
With a strong net cash balance, INTAI Technology investors may not have much to worry about in the near term from a dividend perspective.
Remember, you can always get a snapshot of INTAI Technology's latest financial position, by checking our visualisation of its financial health.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the last decade of data, we can see that INTAI Technology paid its first dividend at least nine years ago. It's good to see that INTAI Technology 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 nine-year period, the first annual payment was NT$1.7 in 2011, compared to NT$4.2 last year. Dividends per share have grown at approximately 11% per year over this time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.
It's not great to see that the payment has been cut in the past. We're generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? It's not great to see that INTAI Technology's have fallen at approximately 4.1% over the past five years. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.
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. First, we think INTAI Technology has an acceptable payout ratio, although its dividend was not well covered by cashflow. Earnings per share are down, and INTAI Technology's dividend has been cut at least once in the past, which is disappointing. In this analysis, INTAI Technology doesn't shape up too well as a dividend stock. We'd find it hard to look past the flaws, and would not be inclined to think of it as a reliable dividend-payer.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for INTAI Technology that investors should take into consideration.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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INTAI Technology Corporation offers a range of products for the automotive, aerospace, precision hardware, medical device, and electronic communication industries in Taiwan and internationally.
Excellent balance sheet and good value.
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