Stock Analysis

Should You Or Shouldn't You: A Dividend Analysis on Delta Asia International Corporation (GTSM:6762)

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TPEX:6762
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Is Delta Asia International Corporation (GTSM:6762) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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.

Delta Asia International has only been paying a dividend for a year or so, so investors might be curious about its 1.5% yield. Some simple research can reduce the risk of buying Delta Asia International for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Delta Asia International!

historic-dividend
GTSM:6762 Historic Dividend February 11th 2021

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. 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. Looking at the data, we can see that 40% of Delta Asia International's profits were paid out as dividends in the last 12 months. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Plus, there is room to increase the payout ratio over time.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Delta Asia International paid out a conservative 44% of its free cash flow as dividends last year. It's positive to see that Delta Asia International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

With a strong net cash balance, Delta Asia International investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Delta Asia International 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. With a payment history of less than 2 years, we think it's a bit too soon to think about living on the income from its dividend. Its most recent annual dividend was NT$4.0 per share.

It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth Potential

Examining whether the dividend is affordable and stable is important. However, it's also important to assess if earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient's purchasing power. Delta Asia International's EPS have fallen by approximately 17% 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 Delta Asia International's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Delta Asia International'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 great to see that Delta Asia International is paying out a low percentage of its earnings and cash flow. Earnings per share have been falling, and the company has a relatively short dividend history - shorter than we like, anyway. Ultimately, Delta Asia International comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.

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 instance, we've picked out 1 warning sign for Delta Asia International that investors should take into consideration.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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About TPEX:6762

Delta Asia International

Delta Asia International Corporation manufactures and sells medical device parts and final products in Taiwan.

Flawless balance sheet with questionable track record.

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