Is Taiming Assurance Broker Co.,Ltd. (GTSM:5878) A Risky Dividend Stock?

Today we'll take a closer look at Taiming Assurance Broker Co.,Ltd. (GTSM:5878) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. 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.

With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Taiming Assurance BrokerLtd is a new dividend aristocrat in the making. It sure looks interesting on these metrics - but there's always more to the story. There are a few simple ways to reduce the risks of buying Taiming Assurance BrokerLtd for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Taiming Assurance BrokerLtd!

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. Looking at the data, we can see that 92% of Taiming Assurance BrokerLtd's profits were paid out as dividends in the last 12 months. This is quite a high payout ratio that suggests the dividend is not well covered by earnings.

Remember, you can always get a snapshot of Taiming Assurance BrokerLtd'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 Taiming Assurance BrokerLtd has been paying a dividend for the past seven years. It's good to see that Taiming Assurance BrokerLtd 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 seven-year period, the first annual payment was NT$2.4 in 2014, compared to NT$3.0 last year. Dividends per share have grown at approximately 3.4% per year over this time. The dividends haven't grown at precisely 3.4% every year, but this is a useful way to average out the historical rate of growth.

Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Taiming Assurance BrokerLtd's earnings per share have been essentially flat over the past five years. Flat earnings per share are acceptable for a time, but over the long term, the purchasing power of the company's dividends could be eroded by inflation. This level of earnings growth is low, and the company is paying out 92% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

Conclusion

To summarise, shareholders should always check that Taiming Assurance BrokerLtd's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, it's not great to see how much of its earnings are being paid as dividends. Second, earnings have been essentially flat, and its history of dividend payments is chequered - having cut its dividend at least once in the past. With this information in mind, we think Taiming Assurance BrokerLtd may not be an ideal dividend stock.

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. Just as an example, we've come accross 3 warning signs for Taiming Assurance BrokerLtd 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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