Is Jourdeness Group Limited (TPE:4190) A Smart Pick For Income Investors?

Could Jourdeness Group Limited (TPE:4190) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

In this case, Jourdeness Group likely looks attractive to dividend investors, given its 4.5% dividend yield and five-year payment history. We'd agree the yield does look enticing. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

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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. Jourdeness Group paid out 82% of its profit as dividends, over the trailing twelve month period. Paying out a majority of its earnings limits the amount that can be reinvested in the business. This may indicate a commitment to paying a dividend, or a dearth of investment opportunities.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Of the free cash flow it generated last year, Jourdeness Group paid out 42% as dividends, suggesting the dividend is affordable. It's positive to see that Jourdeness Group'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, Jourdeness Group investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on Jourdeness Group's financial position 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. Jourdeness Group has been paying a dividend for the past five years. During the past five-year period, the first annual payment was NT$5.0 in 2016, compared to NT$4.0 last year. The dividend has shrunk at around 4.4% a year during that period. Jourdeness Group's dividend hasn't shrunk linearly at 4.4% per annum, but the CAGR is a useful estimate of the historical rate of change.

A shrinking dividend over a five-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

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. It's not great to see that Jourdeness Group's have fallen at approximately 5.5% over the past five years. A modest decline in earnings per share is not great to see, but it doesn't automatically make a dividend unsustainable. Still, we'd vastly prefer to see EPS growth when researching dividend stocks.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, we think Jourdeness Group has an acceptable payout ratio and its dividend is well covered by cashflow. Earnings per share are down, and Jourdeness Group's dividend has been cut at least once in the past, which is disappointing. In sum, we find it hard to get excited about Jourdeness Group from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Jourdeness Group that you should be aware of before investing.

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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