Should Taiwan Fire & Marine Insurance Co., Ltd. (TPE:2832) Be Part Of Your Dividend Portfolio?

Could Taiwan Fire & Marine Insurance Co., Ltd. (TPE:2832) 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. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

A high yield and a long history of paying dividends is an appealing combination for Taiwan Fire & Marine Insurance. We'd guess that plenty of investors have purchased it for the income. There are a few simple ways to reduce the risks of buying Taiwan Fire & Marine Insurance for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Taiwan Fire & Marine Insurance!

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. In the last year, Taiwan Fire & Marine Insurance paid out 53% of its profit as dividends. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

We update our data on Taiwan Fire & Marine Insurance 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. For the purpose of this article, we only scrutinise the last decade of Taiwan Fire & Marine Insurance's dividend payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was NT$0.9 in 2011, compared to NT$1.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 1.5% a year over that 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.

We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don't think this is an attractive combination.

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 Taiwan Fire & Marine Insurance's have fallen at approximately 9.3% 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

To summarise, shareholders should always check that Taiwan Fire & Marine Insurance's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Taiwan Fire & Marine Insurance's payout ratio is within normal bounds. Earnings per share are down, and Taiwan Fire & Marine Insurance's dividend has been cut at least once in the past, which is disappointing. With this information in mind, we think Taiwan Fire & Marine Insurance may not be an ideal dividend stock.

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. To that end, Taiwan Fire & Marine Insurance has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 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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